The tourism industry is considered one of the biggest industrial sectors in the world, which drives economic growth and creates jobs, especially in the developing countries. Saudi Arabia is known for its tourist attractions, especially the religious ones. Saudi Arabia has recently re-formed its tourism sector with the aim of increasing its economic contribution within the plan of economic diversification. The main objective of this paper is to examine the impact of the development of tourism sector on Saudi Arabia’s economic growth. The paper examined the impact of the main components of tourism (inbound and outbound) on economic growth, which captures the net effect of tourism on the economy, i.e., the positive impact of domestic tourism and the negative impact of out-bound tourism. To achieve the paper objective, a quarter data from 2015–2020 is used. The paper estimated two-stage least square model with instrumental variables. The study results showed that internal tourism (domestic and inbound) has a positive impact on economic growth, while outbound tourism has a negative one. The results show the importance of the impact of outbound tourism on GDP growth as its negative impact is significant and may outweigh the positive impact of domestic tourism. The paper recommends increasing the scale of investment in the tourism sector to enhance domestic tourism and reduce outbound tourism.