Financial Development and Long-Run Growth: Evidence from Tunisia: 1962-1997

Abstract

This paper investigates the empirical causal relationship between financial deve lopment and economic growth using unit root and co-integration techniques within bivariate vector auto-regressive (BVAR), based on Tunisian data during the period 1962-1997. The main results of the paper are: (i) The evidence presented in this paper shows a causality direction running from growth to financial development during the sub-period of financial control 1962-1987. (ii) The evidence shows, however, a bivariate directional causality for the whole period (1962-1997) only when private cre dit to GDP and investment rate are used to measure financial and economic deve lopment respectively. (Hi) The results seem to give a weak support to the hypothesis that financial system is a leading sector in the growth process.