Financial Development and Economic Growth in the MENA countries: a dynamic Panel GMM

Financial development effect growth through one of the most important channels, which has been a source of controversies. Some economist believe that financial development by increasing savings and investment makes the growth possible, others think that financial development increases the growth rate by its effects on allocation of resources and productivity. The aim of this paper is to test empirically the relationship between financial development and growth in some Middle East and North Africa by dynamic panel GMM for 12 countries in the sample. The result for the period of 1960-2006 shows that there is a negative effect of financial development on growth. This negative effect of financial weaknesses in financial systems and which countries in the sample have used for financial liberalization which has had a negative effect on investment through an inappropriate allocation of resources.