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Financial Developent and Economic Growth Nexus: Time Series Evidence from Middle Eastern and North African Countries

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  • Abu-Bader, Suleiman
  • Abu-Qarn, Aamer

Abstract

This paper examines the causal relationship between financial development and economic growth in five Middle Eastern and North African (MENA) countries for different periods ranging from 1960 to 2004, within a trivariate vector autoregressive (VAR) framework. We employ four different measures of financial development and apply Granger causality tests using the cointegration and vector error-correction (VEC) methodology. Our empirical results show weak support for a long-run relationship between financial development and economic growth, and for the hypothesis that finance leads growth. In cases where cointegration was detected, Granger causality was either bidirectional or it ran from output to financial development.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 972.

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Date of creation: 2006
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Publication status: Published in Review of Development Economics 4.12(2008): pp. 803-817
Handle: RePEc:pra:mprapa:972

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Keywords: Financial development; Economic growth; MENA; Granger causality; Error-correction models; Cointegration;

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  1. Panicos O. Demetriades & Philip Arestis, 1996. "Financial Development and Economic Growth: Assessing the Evidence," Keele Department of Economics Discussion Papers (1995-2001), Department of Economics, Keele University 96/16, Department of Economics, Keele University.
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Cited by:
  1. Mirdala, Rajmund, 2011. "Financial Integration and Economic Growth in the European Transition Economies," MPRA Paper 36695, University Library of Munich, Germany.
  2. Jean-pierre Allegret & Sana Azzabi, 2013. "Financial development, threshold effects and convergence in developing and emerging countries," Economics Bulletin, AccessEcon, vol. 33(3), pages 1899-1921.
  3. Evans, Olaniyi, 2013. "On the Causality between Domestic Credit Aggregates and Economic Growth in a Multivariate VAR Framework: Evidence from Nigeria," MPRA Paper 51731, University Library of Munich, Germany.
  4. Rajmund MIRDALA, 2012. "Financial Deepening And Economic Growth In The European Transition Economies," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 6(6(18)/ Su), pages 177-194.
  5. Evans, Olaniyi, 2013. "Testing Finance-Led, Export-Led and Import-Led Growth Hypotheses on Four Sub-Saharan African Economies," MPRA Paper 52460, University Library of Munich, Germany.
  6. Selim Yildirim & Bilge Kagan Özdemir & Burhan Dogan, 2013. "Financial Development and Economic Growth Nexus in Emerging European Economies: New Evidence from Asymmetric Causality," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 710-722.

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