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Does Institutions Quality Matter for Financial Development and Economic Growth Nexus? Another Look at the Evidence from MENA Countries

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  • Houssem Rachdi
  • Sami Mensi

    (High School of Business of Tunis, University of Manouba, Tunisia)

Abstract

The relationship between financial development and economic growth remains a fundamental issue in the economics and finance literature. This paper examines this relationship by introducing institutional variables (law and order, corruption, external conflicts, socioeconomic conditions, investment profile and democratic accountability) of 13 Middle East and North African (MENA) countries over the 1990-2008 period using the generalized method of moments (GMM) system approach. This (GMM) systems approach constitutes the outstanding aspect of this study. In fact, the empirical analysis reports the following results: when we use different measures of financial development and institutions as separate explanatory variables, most of the reported coefficients of liquid liabilities and central bank assets are positive and not significant, except for private credit, coefficients are negative and important. Some coefficients of institutional variables are positive and significant. These results have been obtained by using interaction between financial development and institutions. We find that most coefficients have a positive and insignificant impact on economic growth. However for democratic accountability, external conflicts, and socioeconomic conditions when central bank assets are used as a proxy for financial development, coefficients are positive and significant.

Suggested Citation

  • Houssem Rachdi & Sami Mensi, 2012. "Does Institutions Quality Matter for Financial Development and Economic Growth Nexus? Another Look at the Evidence from MENA Countries," Working Papers 705, Economic Research Forum, revised 2012.
    • Handle: RePEc:erg:wpaper:705
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    Cited by:

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    2. Isaac Ofoeda & Lordina Amoah & Ebenezer Bugri Anarfo & Joshua Yindenaba Abor, 2024. "Financial inclusion and economic growth: What roles do institutions and financial regulation play?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 832-848, January.
    3. Imen Mohamed Sghaier, 2022. "The Role of Institutional Quality in Finance-Growth Nexus: Evidence from North African Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(4), pages 3472-3491, December.
    4. Clement Olalekan Olaniyi, 2022. "On the transmission mechanisms in the finance–growth nexus in Southern African countries: Does institution matter?," Economic Change and Restructuring, Springer, vol. 55(1), pages 153-191, February.
    5. Nasreddine Kaidi & Sami Mensi & Mehdi Ben Amor, 2019. "Financial Development, Institutional Quality and Poverty Reduction: Worldwide Evidence," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 141(1), pages 131-156, January.
    6. Clement Olalekan Olaniyi & Sunday Idowu Oladeji, 2021. "Moderating the effect of institutional quality on the finance–growth nexus: insights from West African countries," Economic Change and Restructuring, Springer, vol. 54(1), pages 43-74, February.
    7. Adewale Samuel Hassan & Daniel Francois Meyer, 2022. "Interplay between Finance and Institutions in the Development Process of the Industrial Sector: Evidence from South Africa," JRFM, MDPI, vol. 15(10), pages 1-20, October.
    8. Georges Harb, 2017. "Institutions and Growth in the Arab and Middle Eastern Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 365-376.

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