Examining the Financial Development–Economic Growth Nexus from an Institutional Approach: Evidence from Non-Oil Arab Countries

Abstract

This paper highlights how institution quality plays an important role in the financial development and economic growth nexus in six developing Arab countries. Several estimations were calculated using the generalized method of moments (GMM) covering the period from 1990 to 2016. The results for the selected countries show that the institutions’ quality is responsible for diffusion between financial and real spheres. Thus, the financial system needs good institutional quality presented by better socio-economic conditions, corruption control and a well-respected legal framework to accelerate economic growth.