The Impact of Financial Development on Economic Growth: A Case Study of Saudi Arabia

The interrelation between economic growth and financial development have fuelled the debate in the area of economics. The financial development in countries is driven by concert action of the governments in terms of policy making creating favourable financial infrastructures and taking strategic initiatives to building a conducive financial sector. The paper attempts to empirically revisit the association between financial development and long run growth in context of Saudi Arabia. The research uses select variables measured by World bank to predict economic growth and financial development. The research study analyses the link between financial development and economic growth in Saudi Arabia from 1980 to 2020 spanning a 40-year period. It uses a five variable ADRL model using a supply led approach. The Grainger test of causality and the VECM model proposes a unidirectional relationship flowing from proxy of financial development to Economic growth. The paper reports findings that support that financial development leads to economic growth in Saudi Arabia.