Unveiling the causal nexus between Saudi’s seaborne trade and economy: evidence from an ARDL model

An economy’s primary objective is to foster high economic growth, ultimately enhancing the well-being of its citizens. Recent economic strategies have increasingly emphasized trade-oriented policies to achieve this goal. This study delves into the nexus between Saudi seaborne trade (measured in tons) and gross domestic product (GDP), aiming to determine any causal relationship between these economic variables. Using datasets from the Saudi Central Bank and the General Authority of Statistics, this research employs rigorous unit root, cointegration, and causality tests to find the intricate interplay between trade and economic growth in Saudi Arabia. The empirical analysis highlights a robust long-term relationship between Saudi GDP and seaborne trade, suggesting cointegration. Specifically, the findings reveal a significant impact of economic growth on seaborne trade, as indicated by a trade elasticity of 1.08, which implies that changes in GDP yield a substantial shift in trade. For instance, a 1% increase in GDP corresponds to an approximate 1.08% increase in trade volume. The error correction mechanism also illustrates the dynamic adjustment process: deviations of Saudi seaborne trade and economic growth from equilibrium are corrected by 61% and 43%, in the subsequent year. Furthermore, Granger causality tests unveil bidirectional causality between GDP and trade, elucidating that economic growth changes precede trade volume alterations and vice versa. Thus, fostering international trade not only stimulates income but also bolsters the domestic economy of Saudi Arabia.