The impact of financial development on economic growth: empirical evidence from Algeria

Abstract EN

This study investigates the effect of financial development on economic growth in the case of Algeria during the period (1980-2017).

A financial development index is built using principal component analysis (PCA).

vector error correction model (VECM), Johansen cointegration test and Granger causality are used to achieve the objectives of the study.

The findings indicate the presence of a positive and short-run relationship between the economic growth and the index of financial development.

Furthermore, the cointegration tests show a statistically significant long run equilibrium relationship between the two variables.

Moreover, the Granger causality test shows a unidirectional causality between financial development and economic growth.

These results have important implications to academicians and policy makers in Algeria.