Financial crises and economic growth: evidence from developing countries / Salah Belghoul

This study sheds light on the relationship between financial crises, financial development, financial liberalization and economic growth in the developing countries. The study aims to examine the impact of financial development and financial liberalization on financial crises in developing countries, to investigate the impact of the financial crises, financial development and financial liberalization on economic growth in developing countries, and to examine the interaction effects of financial crises and financial development on economic growth in developing countries. The sample of the study comprises 53 developing countries and the timeframe of this study starts from 2009 to 2018, the general method of moments (GMM) is the technique used. The results of this study reveal that financial development, financial liberalization trigger the onset of financial crises, however economic growth has no significant impact on crises. Regarding objective two (2), financial development and financial liberalization impact the economic growth positively, however, financial crises impact the economic growth significantly and negatively. For objective three (3), financial development, financial liberalization and gross fixed capital formation impact the economic growth positively, however, financial crises impact the economic growth significantly and negatively. Moreover, the interaction between financial development and financial crises impact positively the growth. The study findings imply that the developing countries should implement rules and regulations that aim to strengthen and spur more economic growth, expand their financial development by not just focusing on the banking sector, but capital markets also should be the utmost concern of the development of financial sector. Financial institutions should also provide more financial resources to productive projects in order to guarantee a sustainable growth and to prevent the occurrence of crises or at least mitigate their detrimental effects. Besides, foreign direct investment which is a proxy for financial liberalization must be encouraged with policies that aim to attract more foreign capital into the country. Financial crises have the tendency to affect deeply the countries which have flaws in their economic and financial regulations, therefore in order to limit their expansion, governments must implement policies that feature efficiency and high accuracy.