Investigating the Impact of Demand for the Internet of Things on the Saudi Digital Economy: Panel ARDL Approach

Abstract

This study investigates the impact of Internet of Things (IoT) demand on Digital Economic Growth (DEG) in Saudi Arabia between 2015 and 2023, employing both linear regression and a panel Autoregressive Distributed Lag (ARDL) model. The results show a long-term, significant, and positive association between IoT adoption and DEG, supported by the Technology Organization Environment (TOE) framework, highlighting the relevance of technology readiness and organizational capacity. Moreover, Internet penetration is a significant driver of digital transformation, aligned with the Diffusion of Innovations (DOI) theory, which emphasizes the role of connectivity in facilitating the adoption of digital devices. IoT will have little or no impact in the short term, but in the long run, the benefits are clear. Furthermore, despite the long- and short-term benefits of 5G deployment indicated by the results, a divergence between 5G deployment and electricity consumption is signaled by the significance of the error-correction term, which may be attributed to infrastructure and deployment prerequisites. Additionally, as an extension of the Resource-Based View (RBV) paradigm, the ultimate drivers of DEG through innovation and strategic resources highlight the importance of Research and Development (R&D) investment and Foreign Direct Investment (FDI) in inducing its growth. In contrast, inflation has an adverse impact on DEG, confirming macroeconomic instability as an obstacle to digital advancement, which relates to the environmental pillar of TOE. Policymakers can maximize Saudi Arabia’s digital economic growth on a sustainable, stronger path by investing in IoT infrastructure, increasing internet access and adoption, enhancing R&D and institutional support, and addressing challenges related to macroeconomic stability and 5G deployment. This study adds to the extant research by empirically evaluating the short- and long-term effects of IoT adoption on Saudi Arabia’s digital economic development, thereby providing insights into the roles of innovation, infrastructure, and institutional support in driving digital transformation.