On financial development and economic growth in Egypt

Abstract

Purpose This paper aims to discuss the evolution of the Egyptian banking sector and the main trends in financial development in Egypt. The purpose of this study is to examine empirically the relationship between the development of the financial sector and economic growth in Egypt between 1980 and 2016. Design/methodology/approach The paper draws comparisons based on critical financial indicators between Egypt and selected emerging markets and developing economies. It uses a new data set of financial development indexes released by the International Monetary Fund. This paper uses econometric time series modelling of bivariate regressions for real growth per capita and measures of financial development to assess the relationship between financial development and economic growth in Egypt. Findings There are three specific findings based on the empirical analysis. First, there is a strong association between real growth per capita and financial development measured by money supply to GDP. Second, access to and the efficiency of banking services are not associated with real per capita income. Third, the Financial Markets Access Index – which compiles data on market capitalization outside of the top ten largest companies and the number of corporate issuers of debt – indicates a robust association with real per capita GDP. Originality/value The paper uses advanced empirical investigation techniques and new data sets available to assess the critical relationship between finance and growth in Egypt. The main policy implications of the empirical results of this paper suggest a stronger focus on promoting a more proactive role for the financial services industry in Egypt. In particular, there is a critical role for bank financing to support the private sector to maintain an inclusive growth momentum. Further development of the capital market will promote sustainability of such economic growth.

Linkage between Financial Development and Income Inequality in India

“…Guru and Yadav (2019) using growth indicators of the stock market and banking sector for a panel of most developing economies including Brazil, Russia, India, China, and South from 1993 to 2014, found that the impact of the developed nancial system on economic growth is positive and statistically signi cant. Using data of Egypt on nancial progress indicators and economic development from 1980 to 2016, Mohieldin et al (2019) employed econometric modeling of bivariate regression to investigate the association between nancial progress and economic growth in Egypt. They revealed that both nancial development indicator that is money supply and Index of Financial Markets Access have a strong association with real income growth whereas there is no signi cant association between e ciency of and access to banking services and real income growth.…”

“…A robust nancial isnfrastructure leads to the growth of businesses and thereby generation of more employment and income (Sehrawat and Giri 2016). Recently, many researchers empirically investigated that nancial development positively explains the economic growth of a country (Guru and Yadav 2019, Masoud and Hardaker 2012, Mohieldin et al 2019, Puatwoe and Piabuo 2017and Sehrawat and Giri 2016.…”

External debt vulnerability in emerging markets and developing economies during the COVID-19 shock

“…Finally, many EMDEs have relatively large populations and young age structure but still suffer from income disparities and significant poverty levels. While those countries have great potential to use their population structure and create demographic dividends (Nassar et al, 2017), many still suffer from weak financial institutions and capital markets that are incapable of channeling the dividends of their demographic windows and leveraging (Mohieldin et al, 2019) but also put more pressure on debt sustainability. Using external debt as the prime source of finance increases such risks.…”

Is capital conservation buffer or regulatory leverage better at improving bank efficiency? The case of an emerging market

“…Egypt represents a crucial emerging market, where the banking sector owns a large number of financial assets compared to other financial institutions. Thus, it is considered as a setting dominated by financial institutions (Mohieldin et al, 2019). We choose Egypt to be our case of emerging markets, as Egypt is considered one of the most resilient economies compared to other emerging markets, which survived the global financial crisis and a massive political/ economic distress [2].…”