The Relationship between Financial Development and Economic Growth in Egypt during the Period (1990- 2018): Analytical - Econometric Study

This study aimed to examine the relationship between financial development and economic growth in Egypt for the period (1990-2018). To overcome the shortcomings of using single indicators as proxies for financial development, the study depended on three financial development indices that were developed by the IMF. These indices are overall financial development index (FD), financial institutions index (FI), and financial markets index (FM). In addition to financial development indicators, the impact of investment and final consumption expenditures on Changes of Real Gross Domestic Product (GGDP) as a proxy for economic growth rate were investigated using) ARDL-Bounds Test as Cointegration Approach( to estimate short and long terms parameters and )Toda- Yamamoto( to ascertain the direction of causality relationship between financial development indices and economic growth. The results of the )ADF( and )PP( tests to the unit of time series data showed that some of the variables are I(0) and others are I(1). The bounds test results found a long run relationship directed from three financial development indices to the economic growth rate. The (ECM) confirmed a positive and statistically significant effect of (FD, FI, FM) on (GGDP) in short and long terms. The error correction factor of (FD) equation and “FI & FM” equation were negative and statistically significant. Finally, “T-Y” causality test indicated that there was unidirectional causality run strictly from financial development to economic growth.