The Nexus Between Clean Energy Transition and Real Economic Output: Evidence from Saudi Arabia

This study examines the relationship between the clean energy transition (CET) and real economic output (GDP) in Saudi Arabia from 1990 to 2024. CET is proxied by renewable energy consumption as a share of total final energy consumption. The analysis employs the ARDL bounds-testing framework to estimate short- and long-run relationships, with a robustness check based on an alternative lag specification, complemented by wavelet coherence analysis to capture time-frequency dynamics. The results provide evidence of a long-run relationship among GDP, the CET proxy, financial development (FIDEV), Government Expenditure (GOVEXP), and energy use (ENUSE). The negative interaction term indicates that the conditional elasticity of CET declines as FIDEV increases. The conditional effect is positive but statistically insignificant one standard deviation below the sample mean, becomes negative but remains insignificant around the mean, and is negative and statistically significant at higher levels. GOVEXP is positive but insignificantly associated with real output in both the short and long run, whereas ENUSE shows a positive and significant association over both horizons under the baseline specification; however, both relationships are sensitive to lag specification. The alternative ARDL specification preserves the signs and statistical significance of the core long-run relationships involving CET, FIDEV, and their interaction. Wavelet coherence provides complementary evidence of time-varying co-movement and phase-based lead–lag patterns. The findings highlight the potential importance of aligning financial development with productive transition-related investment in Saudi Arabia.