An Empirical Research On The Relationship Between Financial Development And Economic Growth In Algeria

Financial development and economic growth are closely related. Financial development can facilitate capital mobilization, which will improve investment, thus accelerating economic growth. Many researches in different countries reveal that the financial sector plays an important role in promoting economic growth. In recent years, the Algerian government increased its efforts in implementing the financial reforms in order to modernize the financial system and strengthen its role in the economic growth process.Whether the financial development promotes economic growth or economic growth causes financial development,the relationship really needs to be examined, since the empirical study made by Algerian scholars concerning this topic is very limited.This paper aims to investigate the causal relationship between financial development and economic growth in Algeria. Firstly, it puts forward analysis of the Algerian financial development and economic growth situation. Secondly, there is an examination of the causal relationship from financial deepening view, financial intermediation extent view and financial efficiency view. Thirdly, the Augmented Dickey Fuller test, Johansen co-integration test and Granger causality are used to imply the empirical study. The empirical results show that the role of the financial system development in promoting economic growth is very weak, and the banking system is not efficient in channeling savings to profitable investments. Finally, based on the results obtained, the paper provides relevant policy recommendations.