Abstract
Urbanization is widely recognized as a critical factor influencing economic growth and global trade, yet there is ongoing debate about whether it drives these outcomes or is a consequence of them. To address this, it is essential to determine whether urbanization spurs economic development and trade, or if these processes influence urbanization, or if the relationship is one of mutual causality. This study investigates the interplay between urbanization, economic development, and trade in both the short and the long term. Using data from Saudi Arabia spanning from 1991 to 2022, the research employs cointegration and Granger causality tests to first determine the order of integration of the variables, and it then applies the Autoregressive Distributed Lag (ARDL) model and the Error Correction Model (ECM) to examine causal relationships over different time horizons. The results reveal a bidirectional causality between urbanization and economic development in both the short and the long terms. In contrast, while there is bidirectional causality between trade and economic development in the short term, the long-term analysis indicates a unidirectional causality from trade to economic development. This suggests that trade influences economic development, which in turn affects urbanization, with no direct causality found between trade and urbanization.
