The Institutional Environment and the Banking - Growth Nexus: Theory and Investigation for MENA

Mahmoud Nabi and Osman Suliman

MPRA Paper from University Library of Munich, Germany

Abstract: This paper seeks to provide some theoretical and empirical answers to the following question: Does the institutional environment affect the causality relationship between banking development and economic growth? In the theoretical part, we develop an endogenous growth model where the institutional environment is captured through two indicators: the judicial system efficiency and the easiness of informal trade. We show that an improvement of the institutional environment has two effects. First, it intensifies the causality direction from banking to economic growth through a reduction of defaulting loans. Second, it reduces the interest rate spread. In the empirical part, considering twenty-two MENA countries over the period 1984-2004, we find a bi-directional causality. The first one, which runs from banking development to economic growth, is more intense in countries with a more developed institutional environment. The second causality runs from economic growth to banking and indicates that a more developed economy has a more developed banking system.

Keywords: Banking; Growth; Institutions; MENA (search for similar items in EconPapers)
JEL-codes: O16 O17 O41 (search for similar items in EconPapers)
Date: 2008-04
New Economics Papers: this item is included in nep-afr and nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/11854/1/MPRA_paper_11854.pdf original version (application/pdf)

Related works:
Working Paper: The Institutional Environment and the Banking – Growth Nexus: Theory and Investigation for MENA (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:11854

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().