Banking efficiency and economic growth in the MENA region

This paper examines the nexus between cost efficiency and economic growth in the Middle East and North Africa region. We apply a causality analysis between cost efficiency and financial deepening using the Generalized Methods of Moments and our findings show a significant and positive causality and reverse relationship between financial deepening and banking productivity. We introduce a set of control variables associated with the long run growth and find an interesting interaction with banking productivity and financial deepening suggesting that efforts should be focusing on the investments’ efficiency and the increase of regulation to spur a more stable financial system and foster financial deepening in the future.