Structural Impacts of the Resource Curse: Economic Challenges and Reform in Saudi Arabia

Abstract

This study examines the dynamic relationship between macroeconomic variables and economic growth in Saudi Arabia from 1990 to 2022, focusing on oil revenues and key indicators such as stock market progression, the Human Development Index (HDI), the Consumer Price Index (CPI), and unemployment. Employing Johansen cointegration and Vector Error Correction Models (VECM), the analysis captures both short- and long-term interactions. The findings reveal that stock market progression has a marginal effect on long-term economic growth. At the same time, oil revenues exhibit a negative long-term correlation with GDP, reinforcing the presence of a resource curse in oil-dependent economies. Surprisingly, Human development shows a negative correlation with GDP, reflecting job market inefficiencies that hinder the translation of advancements in health and education into economic productivity. The job market imbalances and the dominance of the oil sector limit the utilization of human capital. Control variables like CPI and unemployment significantly influence economic growth, with unemployment demonstrating a robust negative relationship with GDP. These findings emphasize the need for financial market reforms and diversification efforts aligned with Vision 2030 to mitigate oil dependency and promote sustainable growth. This study contributes to the literature by highlighting the paradoxical relationship between human development and economic growth in an oil-dependent economy and addressing the structural challenges associated with the resource curse.