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The Causal Relationship between Economic Growth, Banking Sector Development and Stock Market Development in Selected Middle-East and North African Countries

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  • Vahid Puryan

    (Business Management (Sub Branch: Financial), Science and Research University, Qazvin, Iran.)

Abstract

Economic growth is the major indicator of government's performances; hence, economists always trying to help policy-makers in this field through accurate recognizing of dynamisms and factor affecting this indicator. On the other hand, financial and monetary markets play a vital role in directing existing funds in economy toward producing and industrial sectors to improve economic growth. In this regard, some economists believe that expanded financial markets are driving force of economic growth is countries. This research has investigated the causal relationship between economic growth, banking sector development, and stock market development (SMD) in selected Middle-East and North African (MENA) countries during 1988-2012. To measure development of banking and stock market sectors, 4 indexes are introduced that are converting to two general indexes for each sector using decomposition method for principle components. To test causal relationship between economic growths, banking sector and SMD, granger causality test based on vector auto regression of error correction has been applied. According to the results of this study, there is a one-way causal relationship from banking sector development toward economic growth, a mutual causal relationship between SMD and economic growth, and a one-way causal relationship from banking sector development toward stock market. SMD has a long-run positive effect on economic growth.

Suggested Citation

  • Vahid Puryan, 2017. "The Causal Relationship between Economic Growth, Banking Sector Development and Stock Market Development in Selected Middle-East and North African Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 575-580.
    • Handle: RePEc:eco:journ1:2017-03-76
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    2. Onur ÖZDEMİR, 2020. "Revisiting the Finance-Growth Nexus in Turkey: Bayer-Hanck Combined Cointegration Approach over the 1970-2016 Period," Sosyoekonomi Journal, Sosyoekonomi Society, issue 28(44).
    3. Andreas & J P S Sheefeni, 2019. "Examining the Causal Relationship between Private Sector Credit Extended and Economic Growth in Namibia," Journal of Economics and Behavioral Studies, AMH International, vol. 11(2), pages 23-29.
    4. M.K. Gusev, 2018. "Risks Of Formation And Management Of The Business Reputation And Image Of The Organization: Evaluation Of The Topic’S Study," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 2, June.

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    More about this item

    Keywords

    Stock Market Development; Banking Sector Development; Economic Growth; Selected Middle-East and North African Countries;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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