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Searching for the Finance-Growth Nexus in Libya

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  • Serhan Cevik
  • Mohammad Rahmati

Abstract

This paper investigates the causal relationship between financial development and economic growth in Libya during the period 1970–2010. The empirical results vary with estimation methodology and model specification, but indicate the lack of long-run relationship between financial intermediation and nonhydrocarbon output growth. The OLS estimation shows that financial development has a statistically significant negative effect on real nonhydrocarbon GDP per capita growth. However, the VAR-based estimations present statistically insignificant results, albeit still attaching a negative coefficient to financial intermediation. It appears that nonhydrocarbon economic activity depends largely on government spending, which is in turn determined by the country’s hydrocarbon earnings.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/92.

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Length: 21
Date of creation: 01 May 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/92

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Related research

Keywords: Development; Libya; Economic growth; Nonoil sector; Financial intermediation; Production growth; Financial systems; Economic models; Time series; Financial development; economic growth; cointegration; causality; VAR models;

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  1. Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank.
  2. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August.
  3. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank supervision and corruption in lending," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2131-2163, November.
  4. Clive Bell & Peter L. Rousseau, 2000. "Post-Independence India: A Case of Finance-Led Industrialization?," Vanderbilt University Department of Economics Working Papers 0019, Vanderbilt University Department of Economics.
  5. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  6. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  7. Mohsin S. Khan & Abdelhak S. Senhadji, 2003. "Financial Development and Economic Growth: A Review and New Evidence," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(Supplemen), pages 89-110, September.
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