Review Article

Study of the current and expected status of economic welfare in the Kingdom of Saudi Arabia until 2030

Adel M. Ghanem¹, Khalid N. Alrwis¹, Mohammad H. Alqunaibet², Othman S. Alnashwan², Abdul Aziz M.Alduwais², Mohamad A. Alnafissa², Yosef A.Alamri², Jawad Alhashim², Suliman Almojel², Sattam F. Almadrra¹ and Sharafeldin B. Alaagib¹

¹Office of Food Security Studies and Research, Vice Rectorate for Postgraduate Studies and Scientific Research, King Saud University, Saudi Arabia

¹Agricultural Economics Department, College of Food and Agricultural Sciences, King Saud University, Saudi Arabia

Submission:February 10, 2025;Published: February 20, 2025

*Corresponding author:Adel M. Ghanem, Office of Food Security Studies and Research, Vice Rectorate for Postgraduate Studies and Scientific Research, King Saud University, Saudi Arabia

How to cite this article:Adel M. G, Khalid N. A, Mohammad H. A, Othman S. A, Abdul Aziz M.A, et al. Study of the current and expected status of economic welfare in the Kingdom of Saudi Arabia until 2030. Ann Soc Sci Manage Stud. 2025; 11(3): 555814.DOI: 10.19080/ASM.2025.11.555814

Abstract

Despite the strength of the economy and the huge natural resources, the Kingdom of Saudi Arabia ranked last in economic welfare compared to the rest of the Gulf Cooperation Council countries, and therefore this study targeted the current and expected status of economic welfare in the Kingdom of Saudi Arabia. This study relied on calculating welfare indicators to achieve its objectives, in addition to using econometric analysis to study the factors determining the level of economic welfare during the period 2000-2023. The most important results are the following: (1) The degree of economic well-being according to the Legatum Prosperity Index increased from 54.9 in 2013 to 58.4 in 2023. Its ranking among 167 countries also increased from 90 in 2013 to 79 in 2023. (2) Economic well-being is linked to the fairness of income or spending distribution among families, which led to a decrease in the value of the Gini index from 51.3% in 2007 to 45.9% in 2013, and then to 32.0% in 2023, (3) A 10% increase in each of the Human Development Index, the ratio of foreign direct investment to GDP, and the domestic investment rate leads to an increase in the level of economic welfare by rates of 14.01%, 0.6%, and 1.06%, respectively,(4) In light of the mechanisms for implementing Saudi Vision 2030, the level of economic welfare is expected to increase according to the Kakawani Index from 80.39 in 2023 to 89.40 in 2030, i.e. the level of economic welfare is expected to increase by a rate of 11.21%.

Keywords:Economic welfare; Welfare measures; Saudi Vision 2030

Introduction

Economic welfare expresses happiness and comfortable living, i.e. satisfaction and comfort of living for individuals in each of food, clothing, housing, health care, education, entertainment, security, and stability. Economic welfare means that part of social welfare, which is governed and affected by economic factors in light of the available resource capabilities and their optimal use, and achieving the maximum possible satisfaction from all goods and services for all members of society [1,2]. Welfare is the main goal of economic development, and is linked to the standard of living that meets the material and moral needs of the human being. Welfare is also defined as the amount of benefit and happiness that enables and helps the individual to feel satisfied and fulfill the various and increasing desires of consuming goods and services [3].

Economic well-being is linked to the standard of living that ensures the achievement of happiness for the individual and society in light of a fair distribution of income. Economic well-being is affected by a set of variables, the most important of which are the level of employment, inflation rate, and local investment [4]. [5] discussed the impact of economic growth on the level of economic well-being in some Arab countries during the period 2007-2019. This study showed a positive impact of economic growth on the levels of well-being in Algeria, Tunisia, Egypt, Morocco, the Sultanate of Oman, Jordan, Kuwait, Qatar, the Kingdom of Saudi Arabia, the United Arab Emirates, Lebanon, Libya, and Bahrain. This study recommended the need to increase sustainable development rates to improve indicators of economic well-being and thus improve its ranking among the countries of the world. These results were consistent with the findings of the study [6], which discussed the relationship between growth in economic sectors and well-being in Asia.

[7] study focused on the relationship between energy consumption, welfare and economic development of some countries in Central and Eastern Europe. This study showed that the relationship between the welfare index and economic growth in Central and Eastern European countries has changed over time. In the future, the relationship between development, welfare and the natural environment in those countries may become more harmonious. Also, [8] studied and analyzed economic welfare and its relationship to the average and fair distribution of income in the State of Iraq during the period 1975-2011. This study showed that economic welfare is not measured by the degree of economic development, but rather by combining the Gini coefficient and the average per capita income. Also, a high level of welfare does not mean that the citizen is affluent in all aspects, but rather affluent in consumption associated with an increase in cash income. This study recommended the need to increase investment expenditures in order to expand production capacities and increase the growth rate, thus increasing the level of economic welfare.

[9] interested in analyzing and measuring welfare and its relationship to income distribution equity in the city of Kirkuk in 2009. The study showed a clear disparity in income distribution in favor of the upper classes. About 60% of Kirkuk’s population receives 38% of the total income. This study recommended the necessity of government intervention to redistribute income in favor of the poor and middle classes, using appropriate financial policies and creating and diversifying other sources of income.

Despite the strength of the economy and the huge natural resources possessed by the Kingdom of Saudi Arabia, represented by the increase in the Kingdom’s crude oil reserves, which amounted to 267 billion barrels, and natural gas, which amounted to 329.08 trillion cubic feet in 2021, in addition to the increase in the gross domestic product to reach 4157.14 billion riyals in 2022, the Kingdom of Saudi Arabia ranked 79th among 167 countries in the Economic Welfare Index in 2023 [10]. In this regard, the study raises several questions, the most important of which are:
i. Why is Saudi Arabia ranked last in economic well-being, compared to the rest of the GCC countries?
ii. Can Saudi Arabia raise the level of well-being according to Saudi Vision 2030?

Research objectives:

This research aimed to study the current and expected status of economic welfare in the Kingdom of Saudi Arabia until 2030, by studying:
i. The current status of economic welfare in the Kingdom of Saudi Arabia during the period 2012-2023.
ii. The most important factors determining the level of economic welfare in the Kingdom of Saudi Arabia.
iii. Predicting the level of economic welfare in light of the predictive values of the specified variables and Saudi Vision 2030.

Materials and Methods

This study relied, in achieving its objectives, on data issued by government agencies, most notably the General Authority for Statistics and the Saudi Central Bank, in addition to data published on the websites of international organizations and institutes interested in evaluating economic and social welfare at the global level. The level of economic welfare is determined by several traditional measures, the most important of which are the following:

Criterion of Paretos Optimality: Pareto relied on the theory of indifference curves to explain optimality in measuring the level of welfare, using the Edgeworth box method. This hypothesis is based on the fact that the distribution of income conducive to welfare can only be achieved by increasing the average income, i.e. economic growth rates must exceed the population growth rate.

The Lorenzs Curve: is used to express the fairness of income distribution. It is a relative cumulative frequency curve that measures the relationship between the relative cumulative frequency of households or individuals and the relative cumulative frequency of income or expenditure.

Gini Coefficient: this coefficient is based on the Lorenz curve, as it is equal to the ratio of the difference between the distance between the Lorenz curve and the optimal distribution line, to half the Lorenz square. The value of the Gini coefficient ranges between zero and one. If the value of the Gini coefficient is equal to zero, this means that there is complete justice in the distribution of income and thus welfare reaches the optimal level, and the opposite is true when the value of the Gini coefficient reaches one. The higher the value of the Gini coefficient, the greater the inequality in the distribution of income and wealth. The value of the Gini coefficient is calculated from the following equation:

he Anand-Sen coefficient: is considered one of the modern measures of welfare and can be expressed by the following equation [11]:

Where: Y represents the average income or expenditure per capita, Y min represents the minimum income (subsistence income), Y max represents the maximum income.

The Kakwani scale: measures the level of welfare using the Gini coefficient as follows [12]:

Where: s₁ W ، Ws₂ represent the level of welfare, M represents the average income or expenditure, G represents the Gini coefficient of inequality in the distribution of income or expenditure.

Kuznets coefficient: This coefficient is used in the case of income data classified according to the distribution of households or the distribution of individuals. It is calculated in the case of decimal classification according to the following law [13]:

Where: D is the Kuznets coefficient,d_i is the percentage of income received by the i-th decile, and |d_i−10| is the absolute value of the difference between the percentage of individuals and the percentage of income per capita. The Kuznets coefficient ranges from zero to one. When the coefficient is zero, the income distribution is absolutely equal, but when the coefficient is one, the income distribution is unequal, with most income going to the bottom decile.

Thiel’s Coefficient: This coefficient depends on extracting the approximate value of income and comparing it with the average individual income to determine the level of economic welfare. The approximate value of income is calculated as follows [14]:

Where: T is the Theil coefficient of asymptotic income, n is the number of individuals, q_i is the income for the i-th group of individuals.

From the above, it is clear that the previous measures used to determine the level of economic welfare all depend on income and the way it is distributed among members of society. There is no doubt that determining the level of economic welfare does not depend only on income and the way it is distributed, but rather depends on many economic, social and environmental variables. Therefore, the Legatum Institute issued the Legatum Prosperity Index to evaluate the economic and social welfare of a group of 167 countries, based on a group of variables, the most important of which are the following:

Prosperity Score, Inclusive Societies, Safety and Security, Personal Freedom, Governance, Social Capital, Open Economic, Investment Environment, Enterprise Conditions, Infrastructure and Market Access, Economic Quality, Empowered People, Living Conditions, Health, Education, and Natural Environment.

Results and Discussion

First: The current status of the level of economic welfare in the Kingdom of Saudi Arabia

Source:The Legatum Institute (2023). The 2023 legatum prosperity index, sixteenth edition.

By studying the current status of economic welfare in the Kingdom of Saudi Arabia, it is clear from the data in (Table 1) that the degree of economic welfare has improved according to the Legatum Prosperity Index from 54.9 in 2013 to 58.4 in 2023. The Kingdom of Saudi Arabia’s ranking among 167 countries has also increased from 90 in 2013 to 79 in 2023. The increase in the degree of economic welfare in the Kingdom of Saudi Arabia is attributed to the improvement in the degree of inclusive societies, personal freedom, governance, and social capital, in addition to improving the investment environment, project conditions, empowered people, living conditions, health, education, and the natural environment.

The Kingdom of Saudi Arabia also ranked last in the economic welfare score of the Gulf Cooperation Council (Figure 1).

Economic welfare is linked to the fairness of income or expenditure distribution among households. The results of the income and expenditure survey data show an improvement in the fairness of income or expenditure distribution among households, which was reflected in the continued decline in the value of the Gini index from 51.3% in 2007 to 45.9% in 2013, and then to 42.2% in 2018 (Figure 2).

In light of the data available to the World Bank and the results of the General Authority for Statistics’ Income and Expenditure Survey, it was possible to calculate the Kakawani measure of the level of welfare in the Kingdom of Saudi Arabia during the period 2000-2023. It is clear from the data in (Table 2) that the level of economic well-being increased from 16.74 in 2000 to 80.39 in 2023, i.e. the level of economic welfare increased at an annual growth rate of 7.1%* during the period 2000-2023 [15].

Source:Compiled and calculated from: (1) The World Bank, open data during the period 2000-2023, (2) The General Authority for Statistics [15],results of the Household Income and Expenditure Survey during the years 2002, 2007, 2013, 2018, 2023.

Second: Studying the factors determining the level of economic welfare in the Kingdom of Saudi Arabia Factors determining the level of economic welfare:

[4] showed that the most important factors determining the level of welfare are: health level, employment level, inflation rate, local investment, and foreign direct investment. As for [5] studied the impact of economic growth on economic welfare. Despite the importance of these variables, there are other variables that have a direct impact on economic welfare, represented by the level of education, environmental quality, and human development. In this study, the following variables were addressed during the period 2000-2023:

Dependent variable: The level of economic welfare, expressed by the Kakawani index (Y_t).

Independent variables: include: (1) the economic growth rate, expressed by the growth rate of the gross domestic product (X_1t), (2) the inflation rate, expressed by the implicit index (X_2t), (3) the human development index (X_3t), (4) the ratio of foreign direct investment to the gross domestic product (X_4t), (5) the investment rate or the ratio of domestic investment to the gross domestic product (X5t), (6) the ratio of spending on health and education (X_6t), (7) the level of employment, expressed by the ratio of the labor force to the total population (X_7t), (8) the quality of the environment, expressed by the amount of carbon dioxide emissions (X_8t).

Stability and staticity of the variables determining the level of economic welfare:

Source:Compiled and calculated from time series analysis of the variables used in this study.

The stability and staticity of the variables determining the level of economic welfare during the period 2000-2023 were detected, using the Fuller-Dickey (ADF) test. The degree of integration of the variables included in the model is determined. If the time series is stable at the first differences, the time series is integrated at the first degree [16]. It is clear from the data in (Table 3) that the variables of the economic growth rate and the percentage of spending on health and education are stable at the level, i.e. they do not contain a unit root, while it was found that the quality of the environment expressed by the amount of carbon dioxide emissions is not stable at both the level and the first differences. The remaining five variables, namely the level of economic welfare, the human development index, the ratio of foreign direct investment to GDP, the rate of domestic investment, and the ratio of the labor force to the total population, were found to be unstable at the level, while they all became stable when taking the first differences, i.e. they do not contain a unit root, as the calculated (t) values are greater than the critical values at the significance level of 5% or 1%, and thus the five variables became integrated at the first degree and stable.

By estimating the correlation coefficient matrix between the stable variables when taking the first differences, it was found that there is a strong correlation of 0.99 between the Human Development Index and the employment rate (ratio of the labor force to the total population), and thus the employment rate was excluded to get rid of the problem of double linearity. By conducting multiple regression analysis in the linear and logarithmic form, the superiority of the double logarithmic model was shown, and it could be expressed by the following equation:

The estimated model shows that a 10% increase in the Human Development Index, the FDI to GDP ratio, and the domestic investment rate leads to an increase in the level of economic welfare in the Kingdom of Saudi Arabia by 14.01%, 0.6%, and 1.06% for each, respectively. The independent variables included in the model explain about 96% of the changes that occurred in the level of economic welfare, while the remaining changes, estimated at about 4%, are attributed to other factors not included in the model. The F value of the Breusch-GodFrey serial correlation LM test was about 0.28, which is statistically insignificant at a significance level of 1%, indicating that the estimated model is free from the problem of autocorrelation of residuals. The estimated model is efficient, as the root mean square error was 0.045, the mean absolute error was 0.036, and the mean absolute error rate was 0.823, while the Theil non-inequality coefficient approached zero (0.005).

Third: Predicting the level of economic welfare in light of the predictive values of the specified variables and Saudi Vision 2030

Predicting the level of welfare in light of the expected values of the specified variables: The level of economic welfare was predicted in light of the estimated predictive values from the general trend equations shown in (Table 4) for each of the Human Development Index, the ratio of foreign direct investment to GDP, and the domestic investment rate during the period 2025-2030. According to the data shown in (Table 5), the Human Development Index is expected to increase from 0.873 in 2025 to 0.898 in 2030. By monitoring foreign direct investments during the study period, it is clear that their value increased from 5.82 billion riyals in 2000 to 147.96 billion riyals in 2008, then decreased to 5.32 billion riyals in 2017, then increased to 72.57 billion riyals in 2021, then decreased until it reached 29.7 billion riyals in 2023 [17]. Given the insignificance and instability of FDI, the average FDI to GDP ratio (2.24%) is assumed to remain the same during the period 2025-2030. The domestic investment rate (ratio of domestic investments to GDP) is also expected to increase from 29.7% in 2025 to 30.8% in 2030. In light of the predictive values of the variables in the model estimated in this study, the level of welfare according to the Kakawani index is expected to increase from 81.67 in 2025 to 95.04 in 2030, with an average estimated at about 88.22 during the period 2025-2030. Comparing the level of economic welfare between 2023 and 2030, it is clear that the level of welfare increased from 80.39 in 2023 to 95.04 in 2030, i.e. the level of economic welfare in 2030 is 12.0% higher than its estimated in 2023.

**Significant at 1% level, *Significant at 5% level, ns not significant.
Source: Data used in this study.

Source: Data in (table 4) and the standard economic model estimated in this study.

Predicting the level of welfare in light of Saudi Vision 2030:

Saudi Vision 2030 is based on three main axes: a vibrant society, a thriving economy, and an ambitious nation. The vision seeks to provide welfare and prosperity to citizens by providing a sustainable healthy lifestyle. In the field of human development, the vision aims to increase life expectancy from 74 to 80 years, increase the participation rate of Saudi women in the labor market from 22% to 30%, and reduce the unemployment rate from 11.6% to 7%. In light of the health, education, and income index, the human development index is not less than 0.90 according to Saudi Vision 2030. In the field of investments, the vision aimed to raise the value of the Public Investment Fund’s assets from 600 billion riyals to more than 7 trillion riyals, increase the rate of local investment (the ratio of investments to the gross domestic product from 22% to 30% in 2030), in addition to raising the ratio of foreign direct investment to the gross domestic product from 3.8% to 5.7% [18]. By compensating for the value of each of the Human Development Index, the ratio of foreign direct investment to the gross domestic product, and the rate of local investment in the estimated model, it is expected to raise the level of economic welfare according to the Kakawani scale from 80.39 in 2023 to 89.40 in 2030, i.e. it is expected to increase the level of economic welfare by a rate of 11.21%.

Conclusion

The level of economic welfare in the Kingdom of Saudi Arabia was affected by a set of variables, the most important of which are human development, foreign direct investment, and the rate of domestic investment during the period 2000-2023. Through econometric analysis, it was found that a 10% increase in each of the human development index, the rate of foreign direct investment, and the rate of domestic investment leads to an increase in the level of economic welfare by a percentage of 14.01%, 0.6%, and 1.06% for each, respectively. Despite the strength of the economy and the vast natural resources, the level of economic welfare of the Kingdom is less than that estimated for the rest of the Gulf Cooperation Council countries, and therefore it is necessary to raise the level of welfare. Since the beginning of 2016, the Kingdom has approved Saudi Vision 2030, which is based on three axes: a vibrant society, a thriving economy, and an ambitious nation. In light of the mechanisms for implementing the vision, the level of economic welfare is expected to increase according to the Kakawani Index from 80.39 in 2023 to 89.40 in 2030, i.e. the level of economic welfare is expected to increase by 11.21%.

Acknowledgement

The authors extend their sincere appreciation to the Deanship of Scientific Research at King Saud University for supporting the work through the College of Food and Agricultural Sciences Research Center.

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