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Does Financial Development Induce Economic Growth in UAE? The Role of Foreign Direct Investment and Capitalization

Sbia, Rashid and Al Rousan, Sahel (2015): Does Financial Development Induce Economic Growth in UAE? The Role of Foreign Direct Investment and Capitalization.

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Abstract

This paper investigates the relationship between financial development and economic growth in case of UAE over the period of 1975Q1-2012Q4. The issue of unit root properties of the variables is solved by employing structural break unit root test. We have employed Bayer-Hanck combined cointegration to test the long run relationship between the variables. Our analysis revealed the existence of cointegration between financial development and economic growth. Financial development induces economic growth. Foreign direct investment stimulates economic growth. Capitalization also increases economic growth. This paper suggests using foreign direct investment appropriately redesigning financial policy for sustainable economic growth in long span of time.

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