Industrial Policy and Economic Growth: Evidence from Saudi Arabia

Dilan Yang and Muhammad Khudadad Chattha

No 11329, Policy Research Working Paper Series from The World Bank

Abstract: This paper empirically assesses Saudi Arabia’s industrial policy using data on policy announcements matched to industry-level exports and firm-level outcomes. It first provides a comprehensive overview of the country’s industrial policy landscape, documenting the scale, timing, sectoral coverage, and policy instruments associated with industrial policy interventions. The analysis then evaluates the effects of these interventions on both external and domestic out-comes. On the external side, no statistically significant impact on exports is detected over the sample period, consistent with evidence that structural transformation and export upgrading typically unfold over long horizons. On the domestic side, industrial policy interventions are examined at the firm level along both the extensive and intensive margins. On the extensive margin, industrial policies lead to a reduction in the number of active firms within the observed sample, suggesting a shift in firm composition within industry. On the intensive margin, local content requirements lead to higher employment but lower capital investment, while domestic subsidies correspond to transitory declines in earnings. Overall, the findings point to early adjustment dynamics, particularly labor absorption, rather than immediate gains in exports or profitability, underscoring the importance of improved policy targeting and coordination to achieve longer-term structural transformation.

Date: 2026-03-02
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