On the Nexus Between Economic Growth and Bank-based Financial Development: Evidence from Morocco

KCHIKECHE, Ahmed and KHALLOUK, Ouafaà (2021): On the Nexus Between Economic Growth and Bank-based Financial Development: Evidence from Morocco. Published in: Middle East Development Journal , Vol. 13, No. 2 (31 May 2021): pp. 245-264.

Abstract

In this paper, we investigate the causal link between bank-based financial development and economic growth in Morocco between 2003 and 2018 using a vector autoregression framework. We test for causality between economic growth and four different measures of bank-based financial development in the short and long run. Our results show that bank-based financial development causes economic growth in the short and long run. Moreover, our results show that economic growth only causes bank-based financial development in the long run. At last, we show that the Moroccan banking sector's integration with the international financial markets only affects the causal link between economic growth and bank-based financial development by providing short-run liquidity to Moroccan banks. Based on these results, barriers to the financial development of the Moroccan banking sector should be investigated, and public policy should focus on designing appropriate policies and programs to alleviate these barriers in order to stimulate the growth of the Moroccan economy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bank-based financial development; Economic growth; Causality; Vector autoregression; Error correction model
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

References

Abdelkhalek, T., & Solhi, S. (2009). Efficience et Productivité des Banques Commerciales Marocaines : Approche non Paramétrique (No. 466; Working Paper Series).

Ahmed, A. A. (2018). Bank-Based Financial Development and Economic Growth: Time-Varying Causality Analysis for Egypt. International Journal of Economics and Finance, 10(4), 123–135.

Andrews, D. (1993). Tests for Parameter Instability and Structural Change With Unknown Change Point. The Econometric Society, 61(4), 821–856.

Andrews, D., & Ploberger, W. (1994). Optimal Tests When a Nuisance Parameter is Present Only Under the Alternative. Econometrica, 62(6), 1383–1414.

Ang, J. B., & McKibbin, W. J. (2007). Financial liberalization, financial sector development, and growth: Evidence from Malaysia. Journal of Development Economics, 84(1), 215–233.

Araç, A., & Özcan, K. (2014). The causality between Financial Development and Economic growth: The case of Turkey. Journal of Economic Cooperation and Development, 53(9), 1689–1699.

Arestis, P., Demetriades, P., & Luintel, K. (2001). Financial Development and Economic Growth: The Role of Stock Markets. Journal of Money, Credit and Banking, 2(2), 43–55.

Bank Al-Maghrib. (2018). Rapport annuel sur le contrôle, l’activité et les résultats des établissements de crédit.

Bayar, Y., Kaya, A., & Yildirim, M. (2014). Effects of Stock Market Development on Economic Growth: Evidence from Turkey. International Journal of Financial Research, 5(1), 93–100.

Benazzi, S., & Rouiessi, I. (2017). Analyse de la concurrence bancaire au Maroc : Approche de Panzar et Rosse (No. 1).

Calderón, C., & Liu, L. (2003). The direction of causality between financial development and economic growth. Journal of Development Economics, 72(1), 321–334.

Cheng, S. Y. (2012). Substitution or complementary effects between banking and stock markets: Evidence from financial openness in Taiwan. Journal of International Financial Markets, Institutions and Money, 22(3), 508–520.

Christopoulos, D. K., & Tsionas, E. G. (2004). Financial development and economic growth: Evidence from panel unit root and cointegration tests. Journal of Development Economics, 73(1), 55–74.

Čihák, M., Demirgüç-Kunt, A., Feyen, E., & Levine, R. (2012). Benchmarking Financial Systems Around The World. In Policy Research Working Paper (Issue August).

Demetriades, P. O., & Hussein, K. A. (1996). Does financial development cause economic growth? Time-series evidence from 16 countries. Journal of Development Economics, 51(2), 387–411.

Dickey, D., & Fuller, W. (1979). Distribution of the Estimators for Autoregressive Time Series With a Unit Root. Journal of the American Statistical Association, 74(366), 427.

Eita, J. H., & Jordaan, A. (2010). A causality analysis between financial development and economic growth for Botswana. African Finance Journal, 12(1), 72–89.

Engle, R., & Granger. (1987). Cointegration and Error Correction: Representation, Estimation, and Testing. Econometrica, 55(2), 251–276.

Enisan, A. A., & Olufisayo, A. O. (2009). Stock market development and economic growth: Evidence from seven sub-Sahara African countries. Journal of Economics and Business, 61(2), 162–171.

Granger, C. W. J. (1980). Testing for causality: a personal viewpoint. Journal of Economic Dynamics and Control, 2(2–4), 329–352.

Granger, C. W. J. (1986). Developments in the Study of Cointegrated Economic Variables. Oxford Bulletin of Economics and Statistics, 48(3), 213–228.

Granger, C. W. J. (1988). Some recent development in the concept of causality. Journal of Econometrics, 39(1–2), 199–211.

Greenwood, J., & Smith, B. D. (1997). Financial markets in development, and the development of financial markets. Journal of Economic Dynamics and Control, 21(1), 145–181.

Gurley, J. G., & Shaw, E. S. (1967). Financial Structure and Economic Development. Economic Development and Cultural Change, 15(3), 257–268.

Hall, S., & Milne, A. (1994). The Relevance of P-Star Analysis to UK Monetary Policy. The Economic Journal, 104(424), 597–604.

Hondroyiannis, G., Lolos, S., & Papapetrou, E. (2005). Financial markets and economic growth in Greece, 1986-1999. Journal of International Financial Markets, Institutions and Money, 15(2), 173–188.

International Monetary Fund. (2016). Morocco: Financial System Stability Assessment (Issue Report No. 16/37).

Jbili, A., Enders, K., & Treichel, V. (1997). Financial Sector Reforms in Morocco and Tunisia. Finance and Development, September, 29–31.

Johansen, S. (1991). Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models. Econometrica, 53(9), 1689–1699.

Johansen, S. (1995). A Statistical Analysis of Cointegration for I(2) Variables. Econometric Theory, 11(1), 25–59.

Johansen, S., & Juselius, K. (1992). Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK. Journal of Econometrics, 53(1–3), 211–244.

Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root How sure are we that economic time series have a unit root ?*. Journal of Econometrics, 54, 159–178.

Levine, R. (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), 89–115.

Lucas, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3–42.

Lütkepohl, H. (1999). Vector Autoregressions. In SFB 373 Discussion Paper (1999,4; SFB 373 Discussion Paper).

Marketa, A., & Darina, F. (2016). Selection of unit root test on the basis of length of the time series and value of ar(1) parameter. Statistika, 96(3), 47–64.

Marques, L. M., Fuinhas, J. A., & Marques, A. C. (2013). Does the stock market cause economic growth? Portuguese evidence of economic regime change. Economic Modelling, 32(1), 316–324.

McKinnon, R. I. (1973). Money and Capital in Economic Development. Brookings Institution.

Mcleay, M., Radia, A., & Thomas, R. (2014). Money creation in the modern economy. Quarterly Bulletin 2014 Q1, 1.

Nyasha, S., & Odhiambo, N. M. (2015). Do banks and stock markets spur economic growth? Kenya's experience. International Journal of Sustainable Economy, 7(1), 54.

Nyasha, S., & Odhiambo, N. M. (2018). Financial Development and Economic Growth Nexus: A Revisionist Approach. Economic Notes, 47(1), 223–229.

Odhiambo, N. M. (2009). Interest rate liberalization and economic growth in Zambia: A dynamic linkage. African Development Review, 21(3), 541–557.

Patrick, H. (1966). Financial Development and Economic Growth in Underdeveloped Countries. Economic Development and Cultural Change, 14(2), 174–189.

Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346.

Pradhan, R. P., Arvin, M. B., & Bahmani, S. (2018). Are innovation and financial development causative factors in economic growth? Evidence from a panel Granger causality test. Technological Forecasting and Social Change, 132(February 2017), 130–142.

Robinson, J. (1952). The Generalisation of the General Theory and Other Essays. In The Rate of Interest and Other Essays (Macmillan).

Rousseau, & Wachtel, P. (2000). Equity markets and growth: Cross-country evidence on timing and outcomes, 1980-1995. Journal of Banking and Finance, 24(12), 1933–1957.

Schumpeter, J. A. (1983). The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle. Transaction Publishers.

Shan, J., & Morris, A. (2002). Does financial development "lead" economic growth? International Review of Applied Economics, 16(2), 153–168.

Shaw, E. S. (1973). Financial Deepening in Economic Development. Oxford University Press.

Sraïri, M. T. (2017). New challenges for the Moroccan agricultural sector to cope with local and global changes. In N. T. DANH (Ed.), Morocco: Environmental, Social and Economic Issues of the 21st Century (Issue October, pp. 165–188). Nova Science Publishers, Inc.

Swamy, V., & Dharani, M. (2018). An alternate approach in exploring the causal link between financial development and economic growth—Evidence from advanced economies. International Journal of Finance and Economics, 23(1), 55–76.

Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66(1–2), 225–250.

Van Nieuwerburgh, S., Buelens, F., & Cuyvers, L. (2006). Stock market development and economic growth in Belgium. Explorations in Economic History, 43(1), 13–38.