Abstract

This paper examines the causal relationship between financial development and economic growth in a panel of three countries of North Africa (Tunisia, Morocco, and Egypt) over the 1980-2012 period. By using system Generalized Method of Moment (GMM) estimator for linear dynamic panel data models, we find a strong positive link between financial development and economic growth when alternative measures of financial development were used. We also found that economic freedom is beneficial to growth, while democracy may have a small negative effect. These findings suggest the need to promote the financial reforms that have been launched since the mid 1980s and to improve the efficiency of these countries’ financial systems to stimulate saving/ investment and, consequently, long-term economic growth.