Searching for the finance–growth nexus in Libya

  • Serhan Cevik
  • Mohammad H. Rahmati


This paper investigates the causal relationship between financial development and economic growth in Libya during the period 1970–2016, providing new insights from a resource-dependent economy. The empirical results vary with estimation methodology and model specification, but indicate no long-run relationship between financial intermediation and nonhydrocarbon output growth. The OLS estimation shows that financial development has a statistically significant negative effect on real nonhydrocarbon GDP per capita growth. However, both the VAR- and ARDL-based estimations present statistically insignificant results, albeit still attaching a negative coefficient to financial intermediation. It appears that nonhydrocarbon economic activity depends largely on government spending, which is in turn determined by the country’s hydrocarbon earnings.


Financial development Economic growth Cointegration Causality VAR models 

JEL Classification

E31 O16 O55 O57 



We thank the editor, Robert Kunst, and two anonymous referees for their constructive comments that led to marked improvements in the paper. This article has also benefited from helpful comments and suggestions by Ralph Chami, Kia Penso, Tahsin Saadi Sedik, and Seyed Reza Yousefi. The views expressed herein are those of the authors and should not be attributed to the International Monetary Fund, its Executive Board, or its Management.


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Copyright information

© International Monetary Fund 2018

Authors and Affiliations

  1. 1.International Monetary FundWashingtonUSA
  2. 2.Graduate School of Management and EconomicsSharif University of TechnologyTehranIran

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