Financial development, oil dependence and economic growth

Ramez Badeeb and Hooi Hooi Lean ()

Studies in Economics and Finance, 2017, vol. 34, issue 2, 281-298

Abstract: Purpose - This paper aims to examine the validity of the question of whether oil dependence has a negative impact on the relationship between financial development and economic growth in Yemen. Design/methodology/approach - The auto-regressive distributed lag approach for cointegration is used to examine the relationship between financial development and economic growth by capturing the impact of oil dependence on this relationship. The Granger causality test, based on a vector error correction model (VECM) framework, is used to investigate the causal relationships between financial development and economic growth. Findings - The most interesting finding is the negative sign of interaction term between financial development and oil dependence, which implies that the positive effect of financial development on economic growth decreases with the increasing oil dependence. The result of the VECM Granger causality test revealed the existence of unidirectional causality running from financial development to economic growth. Research limitations/implications - The short sample period and the worry of losing degrees of freedom limited us when including control variables in the model. If the data are available in the future, other control variables can be added. Practical implications - The government should reduce the level of oil dependence in Yemen by diversifying the country’s economy. Accelerating the pace and efficiency of the financial sector will bear fruitful returns in this regard. The government could achieve this strategy by playing a more proactive role in encouraging the expansion of credit to enable the financial sector to provide a more efficient intermediary role in mobilizing domestic savings and channeling them to productive investments across various economic sectors. Originality/value - This is the first study to examine the impact of oil dependence on the finance-growth nexus in Yemen. A new indicator for oil dependence is also proposed.

Keywords: Economic growth; Financial development; Republic of Yemen; Natural resources curse; Oil dependence (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
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:eme:sefpps:sef-07-2014-0137

DOI: 10.1108/SEF-07-2014-0137

Access Statistics for this article

Studies in Economics and Finance is currently edited by Prof Niklas Wagner

More articles in Studies in Economics and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().