Threshold effect of institutions on finance-growth nexus in MENA region: New evidence from panel simultaneous equation model

Hichem Saidi (hichem.saiidi@gmail.com)
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Hichem Saidi: ESCT Business School of Tunisia, Manouba University

Economics Bulletin, 2020, vol. 40, issue 1, 699-715

Abstract: This paper reexamines the contribution of institutions quality in the effects of capital account liberalization on economic growth in the MENA region. Using a panel simultaneous equation model, we study the marginal effect of capital account liberalization on growth over the 1997–2016 period. Applying various measures of institutions quality and two indices representing capital account liberalization, we found that, while most liberalization indices have a significant positive effect on economic growth, the coefficients of the interaction term are significantly negative. This provides strong evidence that institutional quality mitigates the positive effect of capital account liberalization on economic growth. Our empirical results allow us to conclude that capital account liberalization policy in a country with high corruption and bureaucracy level and weak law and order slows down growth. Thus, to reap the benefits of such a policy, MENA countries should have a strong institutional framework.

JEL-codes: G1 (search for similar items in EconPapers)
Date: 2020-03-05
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