The Effects of Environmental Quality, Trade Openness, and Economic Growth on Financial Development in Algeria: A Diks and Panchenko Approach.

Abstract

The current paper's purpose is to examine the effect of economic growth on Algeria's financial development and the position of trade openness. The paper uses evidence from the time series spanning 1970 to 2018. Gregory and Hansen (1996) co-integration approach, Non-linear ARDL as the elasticity estimator, and Diks and Panchenko (2006) have been applied to the causality test. The outcome of co-integration indicates a long-term relationship between variables. Moreover, the findings confirm that financial development asymmetry related to economic growth. The analysis further reveals the presence of non-linear unidirectional causality between economic growth and financial performance. Besides, the result shows that financial development contributes to environmental degradation in Algeria. It also documents a one-way causal link between trade openness that leads to financial development. It suggests that there exists an overall positive and significant effect of economic growth and trade openness on financial development. The current study advises that an increase in the performance of the real sector and the more openness to trade as it will result in a beneficial spillover effect on the growth of the Algerian financial sector.