Renewable energy and industrial innovation: Catalysts for economic and trade growth

Abstract

Modernizing and diversifying industries have become essential in recent years, particularly with the shift toward new energy sources to boost the global economy. Despite widespread initiatives, the economic impact of these reforms remains uncertain. This study examines the effects of Saudi Arabia’s renewable energy and industrial innovation efforts on key economic variables, aligning with the UN Sustainable Development Goal 8 (SDG 8), which emphasizes inclusive and sustainable economic growth, full and productive employment, and decent work for all. Using an ARDL model, we analyze data from 95 firms operating in the renewable energy sector from 2000 to 2023. The findings reveal that renewable energy investments significantly enhance long-term economic growth, trade balance, and FDI inflows, though their impact on employment and foreign assets is weaker. Industrial innovation also promotes growth and trade, but less so than renewable energy, with sales growth driving foreign asset accumulation. In the short term, both sectors have limited effects on employment and foreign assets. However, when combined, renewable energy investments and industrial innovation amplify their positive influence on GDP and trade, underscoring the need for long-term strategies to sustain economic growth.