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

Suleiman Abu-Bader () and Aamer S. Abu-Qarn ()

No 223, Working Papers from Ben-Gurion University of the Negev, Department of Economics

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.

Keywords: Financial development; Economic growth; MENA; Granger causality; Error-correction models; Cointegration (search for similar items in EconPapers)
JEL-codes: O16 G18 G28 (search for similar items in EconPapers)
Date: 2006-09
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Forthcoming in Review of Development Economics

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http://www.econ.bgu.ac.il/papers/223.pdf First version, 2006 (application/pdf)

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Working Paper: Financial Developent and Economic Growth Nexus: Time Series Evidence from Middle Eastern and North African Countries (2006)
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