Study of causality between civil aviation sector and economic development in Saudi Arabia

Abstract

Recently, Saudi Arabia is undergoing major privatization and Public Private Partnership (PPP) projects, as guided by the Saudi National Transformation Program (NTP) 2020 and the Saudi Arabia’s Vision 2030, attempting to shift the oil-based economy toward more diverse and sustainable economy. The main purpose of the paper is to empirically examine the aviation-led growth hypothesis for Saudi Arabia by testing causality between civil aviation and economic development, applying econometric tests such as Granger causality tests for the time period from 1975 to 2011. Empirical results reveal the existence of the Civil aviation Led-Economic growth hypothesis (economic expansion causing the civil aviation sector to grow) for a developing country like Saudi Arabia. As guided by both the NTP 2020 and Saudi Arabia’s Vision 2030, policy makers should consider updating civil aviation infrastructure, nation-wide airport privatization programs, increase the number of airports in major cities and establish long term partnerships with international airlines and carriers. This will strengthen the private sector and diversify the oil-based economy toward a sustainable economy.