Financial Development, Trade Openness, and Economic Growth in Developing Countries: The Case of Tunisia

Authors

1 Sfax University, Higher Institute of Business Administration, Sfax 3029, Tunisia.

2 Department of Economics, Faculty of Law, Economics and Management, Jendouba University, Jendouba 8189, Tunisia.

Abstract

The finance trade nexus reveals the importance of finance for trading and economic growth. This study used both Johansen Co-integration and Granger causality approaches to investigate the presence of the linkages among financial development (FD), trade openness (TO), and economic growth (GDP) and the causalities between the variables (in Tunisia over the period 1980-2020).  According to the co-integration test results, there is a long-run stable relationship between domestic credit to the private sector, aggregate exports and imports of goods and services, and GDP. The findings indicate that domestic credit to the private sector has the strongest effect on economic growth compared to the sum of exports and imports of goods and services in Tunisia. In addition, the direction of causality followed mixed. Thereby, FD and TO can be deployed to boost growth: The Tunisian government should try to contribute to the financial development to construct a durable financial system and to trigger the Gross Domestic Product. Furthermore, for the Tunisian economies to obtain benefits from trade liberalization, policies and institutional reforms toward investment, production efficiency, and financial development should be carried out abreast with the liberalization.

Keywords

Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 27 November 2022

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