Journal of Applied Finance & Banking

Exploring the Nexus Between Financial Deepening and Economic Performance: Evidence from Saudi Arabia

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• Abstract

   

  This study examines the impact of financial deepening on the rate of economic growth in Saudi Arabia using the autoregressive distributed lag (ARDL) co-integration approach. Unlike previous studies, this paper captures the effects of Vision 2030 reforms and provides updated empirical evidence on how financial deepening, government expenditure, and trade openness interact with economic growth. The sample includes time series data covering the period between 1989 to 2023. Our results reveal that financial deepening promotes Saudi Arabia growth, but only in the long run. Government expenditure has a significant impact on economic growth over time, with both positive and negative effects. Trade openness has significant and positive effects, underlining the relevance of global market integration in economic development. The long-term relationship is confirmed by the negative and highly significant error correction (ECT) term. It implies that any temporary deviation from equilibrium returns to normal in a short period, demonstrating a quick process for adjustment. These findings are valuable for policymakers navigating economic diversification in oil-dependent economies.

   

  JEL classification numbers: G20, G28, C32, O4.

  Keywords: Vision2030, Saudi Arabia, Financial Deepening, Economic Growth, ARDL.