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Does financial development cause economic growth? An empirical investigation drawing on the Moroccan experience

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  • F Z Alaoui Moustain

Abstract

This paper explores the causality issue between financial development and economic growth in the Moroccan context over the period 1970-2000 based on Granger causality tests. The evidence presented in this paper suggests a spasmodic short-term, rather than long-term causality relationship between finance and growth. These findings may be attributed to the newness of financial sector reforms in Morocco, along with the absence of an appropriate investment climate required to foster significant private investment and promote growth in the long run. In addition, aggregate data suggest that financial deepening in Morocco benefited household and government consumption more than private sector investment. An empirical investigation of the impact of credit to the private sector on consumption is therefore provided and confirms the hypothesis that the expansion of credit to the private sector witnessed in Morocco since the reforms have helped maintain consumption patterns, even during times of hardship.

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  • F Z Alaoui Moustain, 2004. "Does financial development cause economic growth? An empirical investigation drawing on the Moroccan experience," Working Papers 542785, Lancaster University Management School, Economics Department.
    • Handle: RePEc:lan:wpaper:542785
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    File URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/FinancialDevelopmentGrowth.pdf
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    1. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, vol. 51(2), pages 387-411, December.
    2. 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.
    3. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    4. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    5. World Bank, 2002. "World Development Indicators 2002," World Bank Publications - Books, The World Bank Group, number 13921.
    6. Mr. Mohsin S. Khan & Mr. Abdelhak S Senhadji, 2000. "Financial Development and Economic Growth: An Overview," IMF Working Papers 2000/209, International Monetary Fund.
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    Cited by:

    1. Ghassan Omet & Ibrahim Saif & Hadeel Yaseen, 2008. "Market Discipline and Deposit Insurance: Evidence from Some Middle Eastern Banks," Working Papers 391, Economic Research Forum, revised 01 Jan 2008.

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