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

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  • Suleiman Abu-Bader

    (BGU)

  • Aamer S. Abu-Qarn

    (BGU)

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. Our results also clearly demonstrate that causality patterns vary across countries and financial measures and, therefore, highlight the danger of statistical inference based on cross-section studies or using a financial measure that does not capture the different mechanisms through which.

Suggested Citation

  • Suleiman Abu-Bader & Aamer S. Abu-Qarn, 2006. "Financial Development and Economic Growth Nexus:Time Series Evidence from Middle Eastern and North African Countries," Working Papers 0609, Ben-Gurion University of the Negev, Department of Economics.
    • Handle: RePEc:bgu:wpaper:0609
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    Cited by:

    1. Ebru TOPCU Author- Workplace-Name: Nevsehir Haci Bektas Veli University, Department of Economics, Turkey, 2016. "Reexamining Finance-Growth Nexus: A New Literature Survey," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 5(Special I), pages 1-7, august.
    2. 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, vol. 6(6(18)/ Su), pages 177-194.
    3. Kunal Sen, "undated". "Towards Inclusive Financial Development for Achieving the MDGs in Asia and the Pacific," MPDD Working Paper Series WP/10/07, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    4. 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.
    5. Hamdi, Helmi & Hakimi, Abdelaziz, 2015. "Did banks and financial markets developments lead to economic growth in MENA region? Evidence from Dynamic panel data estimation," MPRA Paper 64310, University Library of Munich, Germany.
    6. 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.
    7. Serife Ozsahin & Dogan Uysal, 2017. "Financial Deepening and Economic Development in MENA Countries: Empirical Evidence from the Advanced Panel Method," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(4), pages 152-162, April.
    8. Enny Kartini & Milawati Milawati, 2020. "How Sukuk and Conventional Bond Affect Economic Growth? Evidence from Indonesia," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 77-83.
    9. Mohamed Aydi & Abdelkader Aguir, 2017. "Financial Development and Economic Growth: The Empirical Evidence of the Southern Mediterranean Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 196-209.
    10. Abdulkadir Abdulrashid Rafindadi & Almustapha A Aliyu, 2017. "Growing the Growth of the Ghanaian Economy: Is the Function of the Countrys Financial Development of Any Significance?," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(2), pages 206-221, February.
    11. 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.
    12. Yagli , Ibrahim & Cetenak , Emin Huseyin, 2023. "Financial Development and Capital Allocation Efficiency Nexus: Do Sources and Dimensions of Financial Development Matter?," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 48(2), pages 83-103, June.
    13. Jagadish Prasad Bist, 2018. "Financial development and economic growth: Evidence from a panel of 16 African and non-African low-income countries," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1449780-144, January.
    14. Rajmund Mirdala, 2011. "Financial Integration And Economic Growth In The European Transition Economies," Journal of Advanced Studies in Finance, ASERS Publishing, vol. 2(2), pages 116-137.
    15. Naliniprava Tripathy & Shekhar Mishra, 2023. "The Dynamics of Cointegration Between Economic Growth and Financial Development in Emerging Asian Economy: Evidence from India," Vision, , vol. 27(4), pages 485-497, August.
    16. Merve Karacaer-Ulusoy & Ayhan Kapusuzoglu, 2017. "The Dynamics of Financial and Macroeconomic Determinants in Natural Gas and Crude Oil Markets: Evidence from Organization for Economic Cooperation and Development/Gulf Cooperation Council/Organization," International Journal of Energy Economics and Policy, Econjournals, vol. 7(3), pages 167-187.
    17. Abdelghani Echchabi & Dhekra Azouzi, 2015. "Islamic Finance Development and Economic Growth Nexus: The Case of the United Arab Emirates (UAE)," American Journal of Economics and Business Administration, Science Publications, vol. 7(3), pages 106-111, August.
    18. Selim Yildirim & Bilge Kagan zdemir & 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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    More about this item

    Keywords

    Financial development; Economic growth; MENA; Granger causality; Errorcorrection models; Cointegration.;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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