Financial development and economic growth: The Egyptian experience

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138 Scopus citations


This paper examines the causal relationship between financial development and economic growth in Egypt during the period 1960-2001 within a trivariate vector autoregressive (VAR) framework (investment being the additional variable). We employ four different measures of financial development and apply Granger causality tests using the cointegration and vector error-correction (VEC) methodology. Our results strongly support the view that financial development and economic growth are mutually causal, that is, causality is bi-directional. Furthermore, we find that financial development causes economic growth through both increasing resources for investment and enhancing efficiency. These findings suggest the need to accelerate the financial reforms that the Egyptian government launched in 1991 and to improve the efficiency of the financial system to stimulate saving/investment and, consequently, long-term economic growth.

Original languageEnglish
Pages (from-to)887-898
Number of pages12
JournalJournal of Policy Modeling
Issue number5
StatePublished - 1 Sep 2008


  • Cointegration
  • Economic growth
  • Egypt
  • Error-correction models
  • Financial development
  • Granger causality

ASJC Scopus subject areas

  • Economics and Econometrics


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