Inter-Sectoral Linkages and Economic Growth in Saudi Arabia: Toward a Successful Long-term Development Strategy

The main objective of this research paper is to investigate the causal relationship between sectoral development (namely: agriculture, oil, industry and services sectors) and economic growth in Saudi Arabia over the period 1970 to 2012 using multivariate econometric analysis approach. Real GDP is used as proxy for economic growth; value added for agriculture, oil and gas, industry and services sectors is used as proxy for inter-sectoral development. The results suggest that there exists bidirectional causality among the sectoral output of Saudi economy at least in the short run. The findings of this study suggest that the income of Saudi economy largely depends on the income generating from services and industrial sectors, and the income growth of these two sectors, in turn, depends on growth of oil and gas sector. The findings also revealed that the income growth of agricultural sector largely depends on growth of industrial sector. The overall research outcomes also suggest that the oil and gas sector continue to be the dominant driver of other sectoral output growth.