Purpose This study aims to provide an empirical diagnosis of Saudi Arabia’s stagnant economic efficiency. It investigates the long-term relationship between total factor productivity (TFP) and its key drivers to test why conventional growth policies have failed and to identify the institutional transformation necessary to accelerate the success of Vision 2030. Design/methodology/approach Using the autoregressive distributed lag bounds testing method (1990–2023 annual data), this study examines the dynamic relationship between Saudi Arabia’s TFP and its primary drivers – human development (HD), research and development (R&D), trade openness (TO), foreign direct investment FDI, government investment (GI), government consumption (GC) and financial development (FD) – to test prevailing growth assumptions empirically. Findings The results reveal a productivity paradox: while HD and inward globalization (FDI, TO) exert positive long-term impacts, four conventional growth drivers (R&D, FD, GI and GC) show statistically significant adverse long-term effects. This demonstrates that within the existing institutional framework, volume-based input increases are counterproductive, systematically converting investment into inefficiency. Practical implications The findings mandate the next phase of transformation from volume-driven subsidies to a fundamental restructuring of the formal and informal institutions that shape economic incentives. The imperative is to build a performance-based framework that rewards productive behavior, thereby aligning Vision 2030 programs with the core objective of sustainable TFP growth. Originality/value This is the first study to empirically quantify this paradox, providing coefficient-specific evidence that institutional weaknesses can reverse the sign of key growth drivers. It moves the debate from what to spend on to how to build the institutions that incentivize productivity.
Haitham Al Rebh (Mon,) studied this question.