Does financial development cause economic growth? An empirical investigation drawing on the Moroccan experience
This paper explores the causality issue between financial development and economic growth in the Moroccan context over the period 1970-2000 based on Granger causality tests. The evidence presented in this paper suggests a spasmodic short-term, rather than long-term causality relationship between finance and growth. These findings may be attributed to the newness of financial sector reforms in Morocco, along with the absence of an appropriate investment climate required to foster significant private investment and promote growth in the long run. In addition, aggregate data suggest that financial deepening in Morocco benefited household and government consumption more than private sector investment. An empirical investigation of the impact of credit to the private sector on consumption is therefore provided and confirms the hypothesis that the expansion of credit to the private sector witnessed in Morocco since the reforms have helped maintain consumption patterns, even during times of hardship.
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