Abstract
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.
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