Saudi Arabia’s Economic Diversification: Managing the Shift Beyond Oil

For decades, Saudi Arabia has relied heavily on oil revenues to support its economic growth. While this strategy brought substantial benefits, oil prices and global demand remain volatile, and oil itself is a non-renewable resource. These realities raise important concerns about long-term economic sustainability. In response, the country has pursued economic diversification to reduce risk and build a more resilient growth model. This study examines how the roles of the oil and non-oil sectors in driving GDP growth evolved between 1970 and 2024. To capture differences across economic conditions, the study applies both four and ten quantile regression models. These approaches allow us to observe how sectoral contributions change across low, moderate, and high growth periods. The results show that oil sector growth remains positive and significant across the distribution of GDP growth, with a stronger effect during periods of higher growth. At the same time, the non-oil sector is gaining importance, not only in stronger growth conditions, but is also cushioning the economy in periods of low growth. This signals gradual structural progress toward a more balanced and sustainable economy. The two-state Markov-switching model further identifies two persistent growth regimes: one more oil-dependent and another relatively more diversified. However, oil continues to play a meaningful role in both regimes. Overall, the findings suggest a gradual, steady transition rather than a sharp structural break. For long-term sustainability, Saudi Arabia needs to continue strengthening the productivity, resilience, and competitiveness of its non-oil sectors through its oil revenues accrued during periods of high growth. The implications of this study would be beneficial for all resource-rich economies aiming at economic diversification.