The positive effect of financial development on growth has led several authors to advocate the liberalization of the financial sector from the constraints caused by repressive policies disturbing its operation. This policy will theoretically promote financial deepening, which will positively impact growth through increased savings and its allocation to more profitable sectors. The new requirements of the global economy have made economic and financial systems more integrated and liberalized, encouraged by the formation of regional groupings. The partnership between Algeria and the European Union (EU) could be a way of convergence and development for the banking system which has long been presented as a hindrance to the performance of the productive sector. In this paper, we try to explore, through an empirical study, direct and indirect effects induced by integration into a broader regional free trade area, on investment and growth through improving financial system performance. The preliminary results show that trade openness has no direct effect on financial liberalization or growth, as the structure of the Algerian economy remains unchanged for a long period. However, financial integration improves financial variables (cash, bank credit, savings...) and therefore, investment and growth, as expected by economic theory
Topics in Middle Eastern and North African Economies, electronic journal, Volume 16, Middle East Economic Association and Loyola University Chicago, May, 2014, http://www.luc.edu/orgs/meea/
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