Insights into Saudi Arabia's Economic Transformation: Renewable Energy, FDI, and GDP Dynamics

Abstract

This study analyzes the dynamic interplay among key economic indicators—Foreign Direct Investment (FDI), Exports (Exp), Government Consumption Expenditure (GC), and Renewable Energy consumption (RE)—and their effects on Saudi Arabia's Gross Domestic Product (GDP) from 2000 to 2021. Using a comprehensive econometric framework that includes Ordinary Least Squares (OLS) analysis, Vector Autoregression (VAR) models, and Granger Causality tests, this research uncovers the economic drivers shaping Saudi Arabia's Vision 2030. The study finds that FDI and renewable energy consumption significantly predict GDP growth. While many studies have explored the impact of various economic indicators on growth, definitive findings on their predictive relationships with GDP growth in Saudi Arabia are limited. This study fills this gap by highlighting significant predictive relationships, particularly how FDI and renewable energy consumption can drive GDP growth. The results suggest that policies promoting FDI, and renewable energy investments could greatly enhance Saudi Arabia’s economic development, aligning with Vision 2030. A novel aspect of this research is its identification of structural changes in economic relationships following major renewable energy policy initiatives introduced in 2019-2020, providing empirical evidence of policy impacts on economic dynamics. These findings not only contribute to academic discussions on economic diversification but also offer actionable insights for policymakers to optimize Saudi Arabia's transition towards a more diversified and sustainable economy.