The relationship between financial development and economic growth remains a fundamental issue in the economics and finance literature. This paper examines this relationship by introducing institutional variables (law and order, corruption, external conflicts, socioeconomic conditions, investment profile and democratic accountability) of 13 Middle East and North African (MENA) countries over the 1990-2008 period using the generalized method of moments (GMM) system approach. This (GMM) systems approach constitutes the outstanding aspect of this study. In fact, the empirical analysis reports the following results: when we use different measures of financial development and institutions as separate explanatory variables, most of the reported coefficients of liquid liabilities and central bank assets are positive and not significant, except for private credit, coefficients are negative and important. Some coefficients of institutional variables are positive and significant. These results have been obtained by using interaction between financial development and institutions. We find that most coefficients have a positive and insignificant impact on economic growth. However for democratic accountability, external conflicts, and socioeconomic conditions when central bank assets are used as a proxy for financial development, coefficients are positive and significant.
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