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Financial Development and Economic Growth: Empirical Evidence from Six MENA Countries

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  • Suleiman Abu-Bader
  • Aamer S. Abu-Qarn

Abstract

This paper examines the causal relationship between financial development and economic growth for six Middle Eastern and North African countries (Algeria, Egypt, Israel, Morocco, Syria, and Tunisia), within a quadvariate vector autoregressive framework. We employ four different measures of financial development and apply the augmented vector autoregression vector (VAR) methodology of Toda and Yamamoto to test for Granger causality. Our empirical results strongly support the hypothesis that finance leads to growth in five out of the six countries. Only in Israel could weak support be found for causality running from economic growth to financial development but no causality in the other direction. These findings suggest the need to accelerate the financial reforms that have been launched since the mid 1980s and to improve the efficiency of these countries' financial systems to stimulate saving/investment and, consequently, long-term economic growth. Copyright © 2008 The Authors. Journal compilation © 2008 Blackwell Publishing Ltd.

Suggested Citation

  • Suleiman Abu-Bader & Aamer S. Abu-Qarn, 2008. "Financial Development and Economic Growth: Empirical Evidence from Six MENA Countries," Review of Development Economics, Wiley Blackwell, vol. 12(4), pages 803-817, November.
  • Handle: RePEc:bla:rdevec:v:12:y:2008:i:4:p:803-817
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    1. repec:wbk:wbpubs:12425 is not listed on IDEAS
    2. World Bank, 2005. "World Development Indicators 2005," World Bank Publications, The World Bank, number 12426, December.
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