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Modeling Finance–Growth Nexus in MENA Region Economies: A Panel Data Analysis

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  • Abdelmonem Lotfy Mohamed Kamal

    (Department of Finance and Investment, Faculty of Business Administration, Economics, and Information System, Misr University for Science and Technology (MUST), 6th of October City, Giza 11556, Egypt)

  • Mostafa E. AboElsoud

    (Department of Economics, Faculty of Business Administration, Economics & Political Science, The British University in Egypt, Cairo 11837, Egypt
    Department of Economics, Faculty of Commerce, Suez Canal University, Ismailia 41522, Egypt)

  • Khaled Abdella

    (Department of Economics, Faculty of Business Administration, Economics & Political Science, The British University in Egypt, Cairo 11837, Egypt
    Department of Economics, Faculty of Management, Sadat Academy for Management Sciences, Cairo 11837, Egypt)

Abstract

The primary objective of this paper is to examine the relationship between finance and economic growth in a cohort of 16 economies within the MENA region spanning a four-decade period from 1980 to 2021. This study employs panel unit root and panel co-integration analyses to investigate this long-term nexus. The fully modified and dynamic Ordinary Least Squares (OLS) approaches are utilized to estimate the long-run coefficients. The findings underscore the existence of cross-sectional interdependence among these nations. Furthermore, Pedroni’s panel co-integration research robustly supports the idea of a long-term co-integrating relationship between financial development and economic growth. Our long-run panel estimations reveal a positive and statistically significant impact of financial development on GDP per capita income growth. In addition to this broad analysis, this paper conducts a detailed time-series examination focused on a specific country to validate the robustness of the results. These findings further substantiate the favorable influence of financial development on income growth in the majority of MENA nations. Notably, private sector participation in these economies is found to be alarmingly low. As a result, a significant policy implication of this study underscores the urgent need for policymakers to prioritize measures conducive to private sector expansion. Moreover, enhancing financial inclusion, addressing the crowd-out effect, and tackling non-performing loans are critical areas requiring attention within the MENA region. Furthermore, our research highlights the potential benefits of developing stock markets as part of an optimal strategy to enhance both economic and income growth rates. In conclusion, this study contributes valuable insights into the finance–growth nexus in the MENA region, emphasizing the importance of financial development as a driver of economic prosperity and the need for targeted policy initiatives to support private sector growth and financial stability.

Suggested Citation

  • Abdelmonem Lotfy Mohamed Kamal & Mostafa E. AboElsoud & Khaled Abdella, 2023. "Modeling Finance–Growth Nexus in MENA Region Economies: A Panel Data Analysis," Economies, MDPI, vol. 11(12), pages 1-18, November.
    • Handle: RePEc:gam:jecomi:v:11:y:2023:i:12:p:290-:d:1291764
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    References listed on IDEAS

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    1. Narayan, Paresh Kumar & Narayan, Seema, 2013. "The short-run relationship between the financial system and economic growth: New evidence from regional panels," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 70-78.
    2. Joan Robinson, 1979. "The Generalisation of the General Theory and other Essays," Palgrave Macmillan Books, Palgrave Macmillan, edition 0, number 978-1-349-16188-1, October.
    3. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
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