Investigating the Causal Relationship between Transportation Infrastructure and Economic Growth: Empirical Evidence from Saudi Arabia

Abstract

The transport sector is an essential factor of economic activity, as it contributes directly to economic activities and employment. Indirectly, the road impacts all the other sectors and activities in the economy. High-density transport infrastructure and highly connected road networks are indicators of high levels of development. The study aims to analyze the role of the transport sector in Saudi Arabia's development. It also looks into the links between road land and Saudi Arabia's economic development. The study is based on secondary data obtained from the World Bank and Saudi Arabia Monetary Agency between 1988 and 2017. The association between the variables and the Akiake Lag Length Selection Information Criteria was examined using the Granger causality test. A Vector Autoregression (VAR) model was employed to establish causation. The outcome reveals unidirectional causality from real GDP to the road; however, there is no evidence to support that transportation infrastructure is the cause of economic growth. Granger causality from GDP to investment in infrastructure indicates that reinvestment in infrastructure is caused by economic growth, not vice versa. Economic growth put additional strain on existing transportation infrastructure, necessitating additional investment. The finding is consistent with the widely held belief that economic growth or development offers the required financial and technical support for transportation infrastructure investment and improvement.