Mismeasuring Productivity in Resource-Rich Economies: Evidence from Saudi Arabia

Productivity Research Notes (PRN Series), No. 2606. This note shows that standard productivity measures can misrepresent economic performance in resource-rich economies when natural resource capital is omitted from growth accounting. Using evidence from Saudi Arabia, it demonstrates that mineral and energy resources (MER), particularly oil, are a dominant component of capital and materially affect measured capital services. When MER is excluded, TFP exhibits a pronounced decline from the late 2000s; incorporating MER instead stabilizes the TFP path and shifts its level upward, indicating that part of the observed decline reflects unmeasured resource depletion rather than true productivity losses. These results point to a structural measurement bias in conventional productivity analysis and underscore the need to integrate natural resource capital for consistent cross-country comparisons.