Modeling and Analyzing the Dynamic Impact of Financial Development on Economic Growth in Syria

Abstract

There is a link between economic progress and Financial Development. In order to analyze the potential for influencing Economic Growth, this study will look at the underlying elements that drive the development of Syria’s Financial Sector. The research team is also speculating on how much Economic Growth these effects will bring. A Dynamic Linear Model that takes into account Financial Reforms and changes on the Legal System was used to analyze the Impact of Financial Development on Economic Growth between 1980 and 2018. We were able to measure many dimensions of Financial Development with the use of a new IMF Financial Development Indicator, overcoming the limits of single traditional variables that have been widely used. The ARDL Bounds Test approach, which is based on unit root tests, was used. The Error Correction Model was also applied. The country’s Financial Development had a favorable and statistically significant effect on Economic Growth in Syria in the short and long terms. A lot of factors influence Economic Growth, including the Legal System, overall Government Expenditure, and the Exchange Rate. The Supply Leading Hypothesis of Patrick (1966) was realized in Syria,hence Financial Development leads to Economic Growth, consistent with the proposal of “more Finance, more Growth” (Levine, 2003). Financial Development is a necessary condition and prerequisite for Economic Growth in Syria, which is consistent with the (Finance Lead Growth Theory). The model could be very useful in decision-making, especially those related to reform policies to promote the SDGs or to modify current policies in response to a possible global financial crisis or shock.