The Interaction Between Financial Development and Economic Growth: A Novel Application of Transfer Entropy and Nonlinear Approach in Algeria

Abdullah Al khatib, Bayan Mohamad Alshaib and Ali Mohamad Kanaan

SAGE Open, 2023, vol. 13, issue 4, 21582440231217871

Abstract: This study examines the complex interaction between Financial Development (FD) and Economic Growth (EG) in Algeria from 1980 to 2020 using nonlinear modeling techniques. We apply the Non-Linear Causality test with Transfer Entropy, a novel method in this literature, to confirm the nonlinear causality from FD to EG. We also use the Nonlinear Autoregressive Distributed Lag (NARDL) model and the Cumulative Dynamic Multiplier (CDM) to establish the long-run equilibrium and the short-run dynamic relationship between FD and EG. The NARDL results support the Transfer Entropy findings and show that FD has a symmetric impact on EG in both the short and long term. Positive and negative shocks on FD affect EG similarly and the imbalance is corrected in about 6 years. This study provides useful information for policymakers and stakeholders to design policies that promote (EG) and development in Algeria by enhancing FD and mitigating shocks. JEL Codes : C45, C32, E44, O16, O53

Keywords: financial development; economic growth; nonlinear modeling; non-linear causality; transfer entropy; NARDL; cumulative dynamic multiplier (CDM) (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:sae:sagope:v:13:y:2023:i:4:p:21582440231217871

DOI: 10.1177/21582440231217871

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