Are economic diversification and bank-based financial development associated with CO2 emissions in Saudi Arabia? Evidence from a NARDL model

Purpose This study examines asymmetric associations between economic diversification, bank-based financial development and per-capita CO2 emissions in Saudi Arabia, a hydrocarbon-dependent and electricity-intensive economy undergoing structural transformation under Vision 2030. Design/methodology/approach Using annual data for 1995–2020, converted to quarterly observations through quadratic-match average interpolation, the study estimates a nonlinear autoregressive distributed lag (NARDL) model. Economic diversification is measured by the Economic Complexity Index and bank-based financial development by private-sector bank credit. The model controls for electricity consumption, GDP per capita, industrial activity, urbanization and trade openness. Positive and negative changes in diversification and bank-based financial development are decomposed to estimate distinct short- and long-run associations with CO2 emissions. Findings Positive diversification changes are associated with lower CO2 emissions in the short run but higher emissions in the long run. Positive bank-based financial-development changes are associated with higher emissions across both horizons. Negative changes in both variables display distinct short- and long-run adjustment patterns. Electricity consumption and trade openness are positively associated with emissions, urbanization is negatively associated with emissions and GDP per capita and industrial activity are statistically insignificant. Originality/value The study jointly examines economic complexity and bank-based credit in a Saudi Arabian NARDL framework. As quarterly observations are interpolated from annual data, short-run estimates require cautious interpretation. The findings represent conditional asymmetric associations rather than causal effects or direct evidence of sectoral, technological, or policy mechanisms.