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Determinants of Financial Development across the Mediterranean

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  • Ayadi, Rym
  • Arbak, Emrah
  • Ben-Naceur, Sami
  • De Groen, Willem Pieter

Abstract

Casual observation shows that that the financial systems in the southern and eastern Mediterranean are unable (or unwilling) to divert the financial resources that are available to them as funding opportunities to private enterprises. Using a sample of northern and southern Mediterranean countries for the years 1985 to 2009, this study empirically assesses the reasons underlying such conditions. The results show that strong legal institutions, good democratic governance and adequate implementation of financial reforms can have a substantial positive impact on financial development only when they are present collectively. Moreover, inflation appears to undermine banking development, but less so when the capital account is open. Government debt growth appears to weaken credit growth, which confirms that public debt ‘crowds out’ private debt. Lastly, capital inflows appear to primarily have an income effect, increasing income and thereby national savings, and thus increasing the availability of credit.

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Bibliographic Info

Paper provided by Centre for European Policy Studies in its series CEPS Papers with number 7770.

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Length: 30 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:eps:cepswp:7770

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Cited by:
  1. Coutinho, Leonor, 2012. "Determinants of Growth and Inflation in Southern Mediterranean Countries," CEPS Papers 6736, Centre for European Policy Studies.
  2. Marek Dabrowski & Luc DeWulf, 2013. "Economic Development, Trade and Investment in the Eastern and Southern Mediterranean Region," CASE Network Reports 0111, CASE-Center for Social and Economic Research.
  3. Leonor Coutinho, 2012. "Determinants of Growth and Inflation in Southern Mediterranean Countries," CASE Network Studies and Analyses 436, CASE-Center for Social and Economic Research.
  4. Ayadi, Rym & De Groen, Willem Pieter, 2014. "Micro-, Small- and Medium-Sized Enterprises with High-Growth Potential in the Southern Mediterranean: Identifying Obstacles and Policy Responses," CEPS Papers 8796, Centre for European Policy Studies.

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