From Energy Inputs to Innovation Outputs: Explaining Saudi Industrial Competitiveness with ARDL Bounds Testing

Saudi Arabia’s Vision 2030 places industrial upgrading at the center of economic diversification, yet the competitiveness impacts of energy inputs, renewable penetration, and innovation outputs remain insufficiently integrated in a single time-series framework. This study examines the determinants of Saudi industrial competitiveness, proxied by manufacturing value added (% of GDP), using annual data for 1990–2024 from the World Bank’s World Development Indicators. Methodologically, the analysis applies Augmented Dickey–Fuller (ADF) tests and an Autoregressive Distributed Lag (ARDL) bounds-testing approach with an error-correction model (ECM) to distinguish long-run equilibrium linkages from short-run adjustments. The ADF results indicate a mixed order of integration across variables, supporting the ARDL strategy. The bounds test provides evidence of cointegration at conventional significance levels. In the short run, technological innovation (total patent applications) is the only robust driver of competitiveness, while inflation is negative but only marginally significant and energy use, renewable energy consumption, GDP growth, and urbanization are statistically insignificant. The ECM term is negative and significant, implying rapid mean reversion, with about 55.5% of disequilibrium corrected annually. The findings suggest that innovation capability is the most immediate competitiveness lever, while energy-transition gains likely depend on longer-horizon efficiency, electrification readiness, and stable macro conditions.