Is the Trade-led Growth Hypothesis Valid for the Kingdom of Saudi Arabia? Evidence from an ARDL Approach

This study examines the trade-led growth (TLG) hypothesis for the Kingdom of Saudi Arabia. Using time-series annual data for the period 1985–2019, the ARDL approach and Toda-Yamamoto Granger causality test are applied to accomplish the study. The ARDL estimation reveals that trade openness positively causes economic growth in both the long and short run, and the TLG hypothesis is found valid for the Kingdom. The Toda-Yamamoto Granger causality test results have evidenced several unidirectional causalities. Of them, trade openness causes economic growth and supports the ARDL finding and hence the TLG hypothesis for the Kingdom. Moreover, trade openness causes gross fixed capital formation, and the labor force stimulates both economic growth and trade volume. The findings recommend that the Kingdom may increase its trade to reap further benefits and enhance its income growth.