Current Account Balance and Financial Development in MENA Countries: The Role of Institutions

Rihab Bousnina () and Foued Badr Gabsi ()
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Rihab Bousnina: University of Sfax
Foued Badr Gabsi: University of Sfax

Comparative Economic Studies, 2022, vol. 64, issue 1, No 5, 109-142

Abstract: Abstract This paper examines the relationship between current account and financial development, while taking into account institutional quality in the Middle East and North Africa (MENA) region over the period 1990–2018. By applying various measures of the quality of institutions and two indices representing financial development, we found that, while most financial development indices have a significant positive effect on the current account, the coefficients of the interaction term are significantly negative. This clearly shows that institutional quality mitigates the positive effect of financial development on the current account. Our empirical results allow us to conclude that the level of financial development in a country with a high level of corruption increases the current account deficit. These results suggest that, in order to benefit from financial development, financial systems in MENA countries must be embedded within a sound institutional framework.

Keywords: Current account; Institutional quality; MENA countries; GMM (search for similar items in EconPapers)
JEL-codes: F02 F32 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1057/s41294-021-00153-4

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