Direction of causality between financial development and economic growth evidence from Egypt

الملخص EN

The connection of the causality between capital financial market development and economic growth has received much attention throughout last years.

The long-run relationship between the level of financial development and economic performance is generally recognized and accepted (Goldsmith, 1969; King and Levine, 1993).

The origin of these types of investigations is found in the research conducted by Schumpeter (1934).

He argues that financial intermediaries are important for innovation and development.

The current study derives its motivation from the notion that the finance-growth discourse should be narrowed down to individual countries.

Therefore this study provides an empirical assessment relating to the linkage between financial development and economic growth in Egypt in the long run and in the short run.

The study uses the model of Vector Error Correction Model (VECM) comprising GDP growth rate, some selected financial variables.

The study found that GDP is negatively and significantly affected by both the real interest rate and the real exchange rate.

Real interest rate is responded positively by variations in GDP.

In addition, domestic credit as a percentage of GDP is significantly affected by GDP and exchange rate.