A study on the effectiveness of financial development on economic growth of Morocco

Abstract

Economic growth’s theories suggest that a developed financial sector can promote the economy growth. However, the ability of financial sector to boost the economic growth depends on its ability to finance the economy. This paper investigates the relationship between Morocco's economic growth and financial development (FD). We base our study on the crucial role of banking sector in economic growth in developing countries through their financial intermediation. In order, to verify this relationship the vector error correction model (VECM) is used on secondary data: real GDP per capita (GDP) and a set of explanatory variables representing the financial development sector, specifically the ratio of private sector credit (CPS) and control variables including the share of government consumption (PC), the real interest rate (IR), trade openness (TO), and the inflation rate (INF). Our secondary data comes from the Central Bank of Morocco database and covers 56 quarters from 2007Q1 to 2020Q4. The findings support the long- and short-term benefits of financial sector development for economic growth in Morocco.