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Current Account Balance and Financial Development in MENA Countries: The Role of Institutions

Author

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  • Rihab Bousnina

    (University of Sfax)

  • Foued Badr Gabsi

    (University of Sfax)

Abstract

This paper examines the relationship between current account and financial development, while taking into account institutional quality in the Middle East and North Africa (MENA) region over the period 1990–2018. By applying various measures of the quality of institutions and two indices representing financial development, we found that, while most financial development indices have a significant positive effect on the current account, the coefficients of the interaction term are significantly negative. This clearly shows that institutional quality mitigates the positive effect of financial development on the current account. Our empirical results allow us to conclude that the level of financial development in a country with a high level of corruption increases the current account deficit. These results suggest that, in order to benefit from financial development, financial systems in MENA countries must be embedded within a sound institutional framework.

Suggested Citation

  • Rihab Bousnina & Foued Badr Gabsi, 2022. "Current Account Balance and Financial Development in MENA Countries: The Role of Institutions," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(1), pages 109-142, March.
    • Handle: RePEc:pal:compes:v:64:y:2022:i:1:d:10.1057_s41294-021-00153-4
    DOI: 10.1057/s41294-021-00153-4
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    More about this item

    Keywords

    Current account; Institutional quality; MENA countries; GMM;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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