Renewable energy transition, financial development, and sustainable development in Saudi Arabia: evidence from advanced econometric techniques

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Abstract

In this research, I analyzed the relationship between the renewable energy transition, financial development (FD), and sustainability in Saudi Arabia over a period covering the years 1990 through 2024. My primary purpose of this research was to determine the impact that financial, environmental, and institutional factors have on the transition to renewable energy under the auspices of Saudi Vision 2030. To achieve this, I utilized time-series data over a span of 30 years and employed advanced econometric methods, including the Autoregressive Distributed Lag (ARDL) Bounds Testing Technique, Fully Modified Ordinary Least Squares (FMOLS), and Dynamic Ordinary Least Squares (DOLS). All three techniques revealed statistically significant relationships between the dependent and independent variables in the short-run and long-run. Therefore, the results were replicated several times in the empirical section of the study. The findings support the existence of a long-term stable correlation between independent and dependent variables, particularly the positive influence of financial services development, human capital accumulation, improvements in energy efficiency (EE), increased government spending on renewable energy, greater trade openness, and more foreign direct investment (FDI) on the shift to renewable energy. However, carbon dioxide (CO₂) emissions and oil rents have a negative impact on the shift to renewable energy due to the reliance on fossil fuels. Moreover, the evidence also demonstrates that the renewable energy transition is a key source of structural diversification of sustainable development within Saudi Arabia’s economy. As recommendations for practice, I suggest to strengthen green financing instruments, expand renewable energy investments, enhance institutional quality, and continue to develop human capital to accelerate the renewable energy transition.

Keywords

Renewable energy transition / Financial development / Sustainable development / Saudi Arabia / ARDL

CHANGE HISTORY

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