Modeling a sustainable Saudi Arabian economy: the real issues

Abstract

This paper develops a macroeconomic framework for creating a competitive and sustainable Saudi Arabian economy, taking into account the interrelationships among social, environmental, and economic factors. The objective of the research is to build a model that will allow for evaluating the effects of a wide range of emissions abatement policies on economic growth and development. The research methodology is grounded in econometric modeling of the Saudi economy over the period 1980–2010. The estimated parameters of the model were used to project long-term gross domestic product (GDP) growth paths based on three environmental degradation abatement scenarios. The results suggest that the sustainability of economic growth in Saudi Arabia critically depends on aggressive emissions-reduction policies since policy scenarios corresponding to higher pollution cuts yielded higher, sustained long-term GDP. The results also broadly reject the Environmental Kuznets Curve (EKC) hypothesis, implying that a turning point in the relationship between CO2 emissions and per capita GDP is yet to be attained.