Financial development and economic growth in an oil-rich economy: The case of Saudi Arabia

Abstract

We investigate the effect of financial development on economic growth in the context of Saudi Arabia, an oil-rich economy. In doing so, we distinguish between the effects of financial development on the oil and non-oil sectors of the economy. Using the Autoregressive Distributed Lag (ARDL) Bounds test technique, we find that financial development has a positive impact on the growth of the non-oil sector. In contrast, its impact on the oil-sector growth and total GDP growth is either negative or insignificant. This suggests that the relationship between financial development and growth may be fundamentally different in resource-dominated economies.