Financial Development, Innovation, and Economic Growth: Evidence from Saudi Arabia

This study aims to examine the relationship between financial development, innovation, and economic growth in Saudi Arabia over the period 1989–2023. Using the Autoregressive Distributed Lag (ARDL) approach, the study investigates both the short-run and long-run dynamics among gross domestic product (GDP), broad money, and patent activity. The empirical findings indicate that innovation, measured through patent activity, has a positive and significant effect on long-term economic growth, highlighting the importance of technological progress and knowledge creation in supporting economic performance. Financial development also contributes positively to growth, although its impact remains relatively moderate. In contrast, the results reveal a negative relationship between financial development and patent activity, suggesting potential inefficiencies in directing financial resources toward innovation-oriented sectors. In addition, causality tests confirm the existence of significant interactions among the variables. The study contributes to the literature by providing empirical evidence from Saudi Arabia within the context of ongoing economic transformation and diversification policies. The findings offer important implications for policymakers seeking to strengthen innovation capacity and improve the efficiency of financial resource allocation to support long-term economic growth.