The Impact of Financial Sector Development on Economic Growth in the Middle East and North Africa

This paper investigates the impact of financial sector development on the economic growth and the causality relationship between economic growth and financial sector development. The sample of the study included 11 Middle Eastern and North African countries over the period from 1980 to 2009. Using both static and dynamic techniques of estimation, the empirical results demonstrated that most indicators of financial sector development had a positive and significant impact on economic growth. Thus, this result provides evidence supporting the “demand-leading” hypothesis, which implies that a country can speed up the development of its financial sector by pursuing policies that enhance growth in the real sector. These results emphasize the immense need for reforming the financial sector in order to foster the regulatory environment, such as access to credit which, in turn, will have ample ramifications on the countries of the region.