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

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

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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File URL: http://mpra.ub.uni-muenchen.de/972/1/MPRA_paper_972.pdf
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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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Web page: http://mpra.ub.uni-muenchen.de

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  1. Khalifa Al-Yousif, Yousif, 2002. "Financial development and economic growth: Another look at the evidence from developing countries," Review of Financial Economics, Elsevier, vol. 11(2), pages 131-150.
  2. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  3. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  4. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  5. Panicos O. Demetriades & Khaled A.Hussein, 1995. "Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries," Keele Department of Economics Discussion Papers (1995-2001) 95/13, Department of Economics, Keele University.
  6. Ghali, Khalifa H, 1999. "Financial Development and Economic Growth: The Tunisian Experience," Review of Development Economics, Wiley Blackwell, vol. 3(3), pages 310-22, October.
  7. Alif Darrat, 1999. "Are Financial Deepening and Economic Growth Causally Related? Another Look at the Evidence," International Economic Journal, Taylor & Francis Journals, vol. 13(3), pages 19-35.
  8. Levine, Ross & Zervos, Sara J, 1993. "What We Have Learned about Policy and Growth from Cross-Country Regressions?," American Economic Review, American Economic Association, vol. 83(2), pages 426-30, May.
  9. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  10. Bencivenga, V.R. & Smith, B.D., 1988. "Financial Intermediation And Endogenous Growth," RCER Working Papers 124, University of Rochester - Center for Economic Research (RCER).
  11. Harb, Nasri & Al-Awad, Mouawiya, 2005. "Financial Development and Economic Growth in the Middle East," MPRA Paper 13605, University Library of Munich, Germany.
  12. Roubini, Nouriel & Sala-i-Martin, Xavier, 1992. "Financial repression and economic growth," Journal of Development Economics, Elsevier, vol. 39(1), pages 5-30, July.
  13. 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.
  14. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  15. César Calderón & Lin Liu, 2002. "The Direction of Causality Between Financial Development and Economic Growth," Working Papers Central Bank of Chile 184, Central Bank of Chile.
  16. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
  17. Luintel, Kul B. & Khan, Mosahid, 1999. "A quantitative reassessment of the finance-growth nexus: evidence from a multivariate VAR," Journal of Development Economics, Elsevier, vol. 60(2), pages 381-405, December.
  18. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
  19. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  20. Panicos O. Demetriades & Philip Arestis, 1996. "Financial Development and Economic Growth: Assessing the Evidence," Keele Department of Economics Discussion Papers (1995-2001) 96/16, Department of Economics, Keele University.
  21. Jung, Woo S, 1986. "Financial Development and Economic Growth: International Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 34(2), pages 333-46, January.
  22. Greenwood, J. & Jovanovic, B., 1990. "Financial Development, Growth, And The Distribution Of Income," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9002, University of Western Ontario, The Centre for the Study of International Economic Relations.
  23. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  24. Shandre M. Thangavelu & Ang Beng Jiunn & James, 2004. "Financial development and economic growth in Australia: An empirical analysis," Empirical Economics, Springer, vol. 29(2), pages 247-260, 05.
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