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The Determinants of Financial Development in the Republic of Yemen: Evidence from the Principal Components Approach

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  • Ramez Abubakr Badeeb

    (Faculty of Business, Curtin University, Malaysia.)

  • Hooi Hooi Lean

    (School of Social Sciences, Universiti Sains Malaysia, Malaysia.)

Abstract

This paper provides new evidence that sheds light on the main determinants of financial development in the Republic of Yemen. The result demonstrates that economic growth, natural resource dependence, trade openness and inflation are the main determinants of financial development in Yemen. While economic growth and trade openness have a positive impact on the pace of financial development, the natural resource dependence has a negative impact. However, the effect of inflation is sensitive to the choice of proxy for financial development. Hence, whether a factor is good or bad for financial development depends on the indicator used as a proxy for financial development. Moreover, constructing a new proxy by Principal Components Analysis that summarizes the most information of all the available proxies is an efficient way to reflect the characteristics of financial development.

Suggested Citation

  • Ramez Abubakr Badeeb & Hooi Hooi Lean, 2017. "The Determinants of Financial Development in the Republic of Yemen: Evidence from the Principal Components Approach," Capital Markets Review, Malaysian Finance Association, vol. 25(2), pages 32-48.
    • Handle: RePEc:mfa:journl:v:25:y:2017:i:2:p:32-48
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    More about this item

    Keywords

    Financial development; Principal Components Analysis; Yemen.;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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