Financial development, human capital and output growth in Saudi Arabia

Abstract EN

This paper investigates the relationship between financial development, human capital and economic growth in Saudi Arabia over the period 1970-2008.

The empirical analysis is based on the newly developed method of co-integration along with the popular time series methodologies such as the Engle and Granger (1987), Johansen and Juselius (1990) and Granger causality.

The co-integration tests reveal the presence of long run equilibrium relationship between financial development, human capital and economic growth.

The Granger causality tests indicate the existence of bidirectional causality between human capital and economic growth, and between openness and economic growth.

It also confirms the unidirectional causality from financial development to economic growth.

The policy implication of this study is that the Saudi government should develop the financial sector even more and carry out the necessary procedures to strengthen the relationship between the financial sector and the real economy