The Impact of Transportation Infrastructure on Economic Growth: Empirical Evidence from Saudi Arabia

Abstract

The transport sector is an important factor of economic activity, where it contributes directly to economic activities and employment. The road has a large indirect impact on all the other sectors and activities in the economy. The study aims to investigate the causality relations between road land and economic growth in Saudi Arabia. The study is based on secondary data gained from Saudi Arabia Monetary Agency and World Bank over the period of1988 to2017. The Granger causality test was used to investigate the relationship between the variables with Akiake Lag Length Selection Information Criteria, while Vector Autoregtression (VAR) model was used in order to find the causality. The result reveals unidirectional causality form real GDP to 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 and not vice versa. Economic growth drove pressures on existing transport infrastructure and required additional investment. The finding is in line with the commonly accepted notion advocating that economic growth or development provide necessary financial and technical support for transportation infrastructure investment and improvement.