The Role of Economic and Environmental Variables in Green Growth: Evidence from Saudi Arabia

Saudi Arabia, as one of the world’s leading oil producers, faces critical challenges in transitioning to sustainable economic growth. The heavy reliance on oil exports, coupled with rapid urbanization and environmental degradation, underscores the urgent need for green growth strategies tailored to the Kingdom’s unique socioeconomic and environmental context. This study aims to investigate the factors influencing the Green Growth Index (GGI), which measures sustainable economic growth, and analyze the short-term and long-term relationships between key variables such as environmental technology diffusion, carbon emissions, financial development, GDP per capita, and urbanization. The research employs the Autoregressive Distributed Lag (ARDL) model to assess the effects of various explanatory variables on the GGI, considering both immediate and delayed impacts. The model also incorporates an Error Correction Model (ECM) to evaluate the short-term dynamics and long-term equilibrium adjustments. It is found that the diffusion of environmental technologies and urbanization positively influence GGI in the short term, while CO2 emissions are also linked to growth in the short run. However, financial development negatively impacts green growth in the long term, and GDP per capita has no significant effect. The ECM indicates that urbanization and emissions are major short-term drivers, while other factors show minimal short-run influence. This paper provides new insights into the dynamics of green growth by highlighting the roles of urbanization, environmental technologies, and emissions, offering valuable policy implications for sustainable development. The findings contribute to the understanding of the complex relationships that shape green growth in both the short and long term.