Financial Development and Economic Growth: Evidence from the Mena Region

Abstract

This paper attempts to empirically investigate the question of whether financial development leads to economic growth in a group of five developing countries in the Middle East and North Africa, (MENA) region. Unlike most previous empirical research on the issue, the paper focuses on the causal link between financial development and economic growth in order to discriminate between alternative theoretical hypotheses. Measures of financial development that are more appropriate to use than what is commonly used in the literature adopted in this paper. The results of the empirical investigations are mixed. For all countries, financial development reveals to be an engine to economic growth. But in some of these countries, the causality seems to run in both directions. These results seem to be well in accordance with the views that economic policies are country specific and that their implications depend on the features of the institutions that implement them.