Searching for the Finance-Growth Nexus in Libya

IMF Working Papers, May 1, 2013

Source details

Investigates the causal relationship between financial development and economic growth in Libya during the period 1970–2010.
Focus on nonhydrocarbon output and the role of financial intermediation.

Employs multiple estimation methodologies and model specifications, including OLS and VAR-based estimations.
Uses causality and cointegration techniques; references VAR models.

Empirical results vary with estimation methodology and model specification, but indicate the lack of long-run relationship between financial intermediation and nonhydrocarbon output growth.
OLS estimation shows that financial development has a statistically significant negative effect on real nonhydrocarbon GDP per capita growth.
VAR-based estimations present statistically insignificant results, albeit still attaching a negative coefficient to financial intermediation.
Nonhydrocarbon economic activity appears to depend largely on government spending, which is in turn determined by the country’s hydrocarbon earnings.

Subject: Commercial banks; Credit; Expenditure; Financial institutions; Financial markets; Financial sector development; Money; Oil prices; Prices.
Keywords: causality; cointegration; Commercial banks; Credit; economic growth; finance-growth nexus; Financial development; Financial sector development; GDP growth; hydrocarbon GDP; Oil prices; rate of change; VAR models; well-functioning financial system; WP.

Source: IMF Working Papers — "Searching for the Finance-Growth Nexus in Libya" by Serhan Cevik and Mohammad Rahmati (May 1, 2013).