The potential economic impacts of financial liberalization in Libya in case of accession to the World Trade Organization (WTO)

Given the significance of financial liberalization and the key role of financial development in economic growth, according to the financial liberalization theory, liberalizing the financial sector is a route to increasing savings, investment and growth. However, the recent studies have shown that a number of developing countries do not demonstrate this kind of relationship and have, rather, recorded relatively low growth. The primary purpose of this research is to explore the potential economic impacts on the Libyan economy of economic liberalization in general, and liberalization of the financial services sector in particular, in the event of Libya‟s accession to full membership of the WTO. In order to ascertain and to quantify this impact, the study used a mixed methodology. The existing theoretical arguments have been critically reviewed in order to develop the research idea. In line with the research objectives, the methodology used include a quantitative and qualitative approach. First, the quantitative aspect is based on an empirical assessment of the impact of financial liberalization using time-series econometric techniques from 1978 to 2011 for secondary data analysis; and second, the qualitative approach, based on semistructured interviews directly related to the research aims and objectives. The empirical findings achieved the aim of the research. The results obtained show that despite the reforms and liberalization in the financial sector, there is a negative relationship between financial liberalization in Libya and economic growth during this period. This disproves the theory of financial liberalization that claims a positive co-relation between financial liberalization and economic growth. The research outcomes include a set of recommendations based on the findings of the study, which are potentially useful for policy makers and further research.