Economic and Environmental Sustainability through Trade Openness and Energy Production

Abstract

Background: Energy production plays a major role in the Saudi Arabian economy, but energy production can lead to an increase in environmental pollution. Objectives: This study investigated the impact of energy production and trade openness on Saudi Arabia’s economic growth and environmental pollution using annual data from 1970 to 2020. Methods/Approach: The fully modified ordinary least squares (FMOLS) and the dynamic ordinary least squares (DOLS) methods were employed to develop two models, including an economic growth model and an environmental Sustainability or pollution model. Results: The results of the two tests ensured that both expanding trade openness and increasing energy production led to faster economic growth. Nevertheless, the expansion of trade openness and energy production also led to environmental pollution; hence, the increase in energy production did not support sustainable development. Conclusions: Thus, policymakers should develop a green economy strategy to reduce the use of fossil fuels and increase renewable energy in energy production to reduce environmental pollution. Moreover, the Saudi Arabian government should highly promote investment in renewable energy production through trade openness.