Distributional Effects of Financial Inclusion, Trade, and Human Development on Growth: A Quantile Regression Study of Saudi Arabia

Abstract

This study investigates the heterogenous effects of financial inclusion, energy consumption, human development, and trade openness on economic growth in Saudi Arabia over 2004–2023. The quantile regression method is employed to account for distributional features in the growth process that are otherwise lost in standard mean-based estimators. The Johansen cointegration test confirms the presence of a long-run equilibrating relationship among the variables, with an argument for the application of Fully Modified Ordinary Least Squares (FMOLS) as a robustness check. Empirical results indicate that financial inclusion significantly and positively impacts economic growth in all quantiles and underscores its impact in both lower- and higher-growth settings. Human development, as estimated by the Human Development Index (HDI), is positively related to economic growth in quantiles 0.10, 0.25, 0.5, and 0.75, but in quantile 0.90 the effect becomes statistically insignificant, indicating diminishing returns for higher incomes. Trade openness has positive and significant relations with quantiles of 0.10, 0.25, and 0.75, whereas energy consumption maintains a negative but statistically insignificant relation with all quantiles. The FMOLS estimates are broadly consistent with the results of the quantile regression. The results highlight the importance of embracing differentiated, phase-specific policy actions in an effort to develop inclusive and sustainable economic growth in line with Saudi Arabia's Vision 2030.