The impact of digitalization and economic diversification on economic growth: evidence from Saudi Arabia
Abstract
The present study aims to assess the impact of economic diversification and digitalization on economic growth in Saudi Arabia during the period 1990–2021. We have looked into this relationship in both the overall economic and non-oil economic sectors using the autoregressive distributed lag (ARDL) cointegration approach. The empirical results offer compelling evidence that economic diversification and digitization affect economic growth both directly and indirectly through their effects on non-oil GDP growth. The findings indicate that there is a long-run dynamic between economic growth, economic diversification, and digitalization. In the long run, digitalization contributes to the progress of non-oil economic growth and, therefore, sustainable economic growth. In addition, the causality test revealed that economic diversification develops the economy of new knowledge, which reinforces economic diversification, and non-oil economic growth supports digitalization. Consequently, digitalization played an important role in the Kingdom’s economic transition toward economic diversification. Indeed, our results prove that digitalization increases non-oil income and then reduces the supremacy of the oil sector in the economy, which promotes economic diversification. The KSA authority must accelerate the energetic transition process in order to support economic diversification and attract more foreign investment in information and communication technologies (ICTs).
Keyword : digital economy, digitalization, diversification, economic growth, ARDL model
How to Cite
Neffati, M., & Jbir, R. (2024). The impact of digitalization and economic diversification on economic growth: evidence from Saudi Arabia. Technological and Economic Development of Economy, 30(5), 1510–1532. https://doi.org/10.3846/tede.2024.22105
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Albassam, B. (2015). Economic diversification in Saudi Arabia: Myth or reality. Resources Policy, 44, 112–117. https://doi.org/10.1016/j.resourpol.2015.02.005
Aleksandrova, A., Truntsevsky, Y., & Polutova, M. (2022). Digitalization and its impact on economic growth. Brazilian Journal of Political Economy, 42(2), 424–441. https://doi.org/10.1590/0101-31572022-3306
Alghamedi, A. (2014). Lack of diversification is a challenge facing Saudi Arabia. Journal of Global Business Issues, 8(2), 57–62.
Algowear Almestneer, R. A. (2018). Economic diversification: The case of Saudi Arabia with reference to rich natural resource countries [PhD Thesis]. Southern Illinois University, Carbondale. https://opensiuc.lib.siu.edu/dissertations/1516/
Al-Naimi, S. M. (2022). Economic diversification trends in the Gulf: The case of Saudi Arabia. Circular Economy and Sustainability, 2, 221–230. https://doi.org/10.1007/s43615-021-00106-0
Al-Roubaie, A. (2019). Building capacity for digital development in the Arab world: The role of education. International Journal of Engineering and Advanced Technology (IJEAT), 8(5C), 1530–1537. https://doi.org/10.35940/ijeat.E1225.0585C19
Al-Roubaier, A., Hamdan, A., & Sarea, A. M. (2020). Economic diversification in a digital economy. In A. E. Hassanien, A. Azar, T. Gaber, D. Oliva, & F. Tolba (Eds.), Proceedings of the International Conference on Artificial Intelligence and Computer Vision (AICV2020). AICV 2020. Advances in Intelligent Systems and Computing, Vol. 1153. Springer, Cham. https://doi.org/10.1007/978-3-030-44289-7_62
Arsić, M. (2020). Impact of digitalization on economic growth, productivity and employment. Economic Themes, 58(4), 431–457. https://doi.org/10.2478/ethemes-2020-0025
Bahrini, R., & Qaffas A. A. (2019). Impact of information and communication technology on economic growth: Evidence from developing countries. Economies, 7(1), Article 21. https://doi.org/10.3390/economies7010021
Banafea, W., & Ibnrubbian, A. (2018). Assessment of economic diversification in Saudi Arabia through nine development plans. OPEC Energy Review, 42(1), 42–51. https://doi.org/10.1111/opec.12116
Castellacci, F., & Tveito, V. (2018). Internet use and well-being: A survey and a theoretical framework. Research Policy, 47(1), 308–325. https://doi.org/10.1016/j.respol.2017.11.007
Danilin, I. (2019). Development of the digital economy in the USA and China: Factors and trends. Outlines of Global Transformations: Politics, Economics, Law, 12(6), 246–267. https://doi.org/10.23932/2542-0240-2019-12-6-12
Dong, J., & Xu, X. (2022). Research on the path of digital economy promoting export trade under the background of high-quality development. Economics, Law and Policy, 5(2), 17–27. https://doi.org/10.22158/elp.v5n2p17
Dumitrescu, E. I., & Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic Modelling, 29(4), 1450–1460. https://doi.org/10.1016/j.econmod.2012.02.014
Economic and Social Commission for Western Asia. (2001). Economic diversification in the oil producing countries: The case of the Gulf Cooperation Council Economies. United Nations, New York, NY.
Euchi, J., Omri, A., & Al-Tit, A. A. (2018). The pillars of economic diversification in Saudi Arabia. World Review of Science, Technology and Sustainable Development, 14, Article 330. https://doi.org/10.1504/WRSTSD.2018.095719
European Commission. (2017). Digital economy and society information index (report). https://digital-strategy.ec.europa.eu/en/library/digital-economy-and-society-index-desi-2017
General Authority for Statistics. (2023). GASTAT [statistical database]. https://www.stats.gov.sa
Goldfarb, A., & Tucker, C. (2019). Digital economics. Journal of Economic Literature, 57(1), 3–43. https://doi.org/10.1257/jel.20171452
Gozgor, G., & Can, M. (2016). Effects of the product diversification of exports on income at different stages of economic development. Eurasian Business Review, 6(2), 215–235. https://doi.org/10.1007/s40821-016-0045-5
Guendouz, A. A., & Ouassaf, S. (2020). The economic diversification in Saudi Arabia under the strategic vision 2030. Academy of Accounting and Financial Studies Journal, 24(5), 1–23.
Gylfason, T. (2017). From double diversification to efficiency and growth. Comparative Economic Studies, 59(2), Article 149. https://doi.org/10.1057/s41294-017-0021-9
Ha, H., & Peter-Chuah, C. K. (2023). Digital economy in Southeast Asia: Challenges, opportunities and future development. Southeast Asia: A Multidisciplinary Journal, 23(1), 19–35. https://doi.org/10.1108/SEAMJ-02-2023-0023
Habibi, F., & Zabardast, M. A. (2020). Digitalization, education and economic growth: A comparative analysis of Middle East and OECD countries. Technology in Society, 63, Article 101370. https://doi.org/10.1016/j.techsoc.2020.101370
Havrlant, D., & Darandary, A. (2021). Economic diversification under Saudi Vision 2030. KS--2021-DP06. King Abdullah Petroleum Studies and Research Center. https://doi.org/10.30573/KS--2021-DP06
Houfi, M. A. (2021). Is the impact of the economic diversification on economic growth symmetric or asymmetric? Evidence from Saudi Arabia. International Journal of Economics and Finance, 13(10), 1–11. https://doi.org/10.5539/ijef.v13n10p1
International Monetary Fund. (2021). Build forward better (report). https://www.imf.org/external/pubs/ft/ar/2021/eng/
Jurayevich, M. B., & Bulturbayevich, M. B. (2020). The impact of the digital economy on economy growth. International Journal of Business, Law, and Education, 1(1), 4–7. https://doi.org/10.56442/ijble.v1i1.2
Khattak, M. A., Ali, M., Azmi, W., & Rizvi, S. R. (2023). Digital transformation, diversification and stability: What do we know about banks. Economic Analysis and Policy, 78, 122–132. https://doi.org/10.1016/j.eap.2023.03.004
Kingdom of Saudi Arabia. (2020). Vision 2030. Retrieved March 11, 2023, from https://www.vision2030.gov.sa/en
OCDE, & OMC. (2020). Panorama de l’aide pour le commerce, 2019: diversification et autonomisation économiques. https://www.wto.org/french/res_f/booksp_f/aid4trade19_poket_f.pdf
OECD. (2011). Economic diversification in Africa: A review of selected countries. OECD Publishing.
OECD/World Trade Organization. (2019). Economic diversification: lessons from practice. In Aid for Trade at a Glance 2019: Economic Diversification and Empowerment. OECD Publishing. https://doi.org/10.1787/f61d8ce8-en
Olczyk, M., & Kuc-Czarnecka, M. (2022). Digital transformation and economic growth – DESI improvement and implementation. Technological and Economic Development of Economy, 28(3), 775–803. https://doi.org/10.3846/tede.2022.16766
Ozdeser, H., Usman, M. A., & Shuaibu, U. A. (2021). Investigating the impact of diversifi cation on economic growth in Nigeria: Evidence from structural vector autoregression analysis. Romanian Statistical Review, (2).
Pradhan, R. P., Arvin, M. B., Mahendhiran, N., Bennett, S. E., & Bahmani, S. (2019). Short-term and long-term dynamics of venture capital and economic growth in a digital economy: A study of European countries. Technology in Society, 57, 125–134. https://doi.org/10.1016/j.techsoc.2018.11.002
Shediac, R., Abouchakra, R., Moujaes, C., & Najjar, M. R. (2008). Economic diversification: The road to sustainable development. Booz & Company Inc.
Smith, S. M., & Gibson, C. M. (1988). Industrial diversification in nonmetropolitan counties and its effect on economic stability. Western Journal of Agricultural Economics, 13(2), 193–201.
Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66(1–2), 225–250. https://doi.org/10.1016/0304-4076(94)01616-8
United Nations Economic Commission for Africa. (2019). Digital transformations and economic diversification in Central Africa: Issues, challenges and opportunities. Preliminary Report of the 35th Session of the Intergovernmental Committee of senior Official and Experts for central Africa (ICE).
World Economic Forum. (2023). Digitalization as a driver of economic resilience in Saudi Arabia during COVID-19. Technology foresight center in collaboration with ministry of communication and information technology of Saudi Arabia. www.mcit.gov.sa
Zhou, Q. (2023). Research on the impact of digital economy on rural consumption upgrading: Evidence from China family panel studies. Technological and Economic Development of Economy, 29(5), 1461–1476. https://doi.org/10.3846/tede.2023.19511
World Bank. (2013). Online trade outcome indicator. Retrieved February, 23, 2024, from https://wits.worldbank.org/WITS/docs/TradeOutcomes-UserManual.pdf