This paper examines the causal relationship between financial development and economic growth for six Middle Eastern and North African countries (Algeria, Egypt, Israel, Morocco, Syria, and Tunisia), within a quadvariate vector autoregressive framework. We employ four different measures of financial development and apply the augmented vector autoregression vector (VAR) methodology of Toda and Yamamoto to test for Granger causality. Our empirical results strongly support the hypothesis that finance leads to growth in five out of the six countries. Only in Israel could weak support be found for causality running from economic growth to financial development but no causality in the other direction. These findings suggest the need to accelerate the financial reforms that have been launched since the mid 1980s and to improve the efficiency of these countries' financial systems to stimulate saving/investment and, consequently, long-term economic growth. Copyright � 2008 The Authors. Journal compilation � 2008 Blackwell Publishing Ltd.

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This study uses multivariate cointegration and variance decomposition techniques to investigate the causal relationship between government expenditures and economic growth for Egypt, Israel and Syria, for the past three decades. When testing for causality within a bivariate system of total government spending and economic growth, we find bi-directional causality from government spending to economic growth with a negative long-term relationship between the two variables. However, when testing for causality within a trivariate system -the share of government civilian expenditures in GDP, military burden and economic growth -we find that the military burden negatively affects economic growth for all the countries, and that civilian government expenditures cause positive economic growth in Israel and Egypt.Classification: O23, O53, H50, N15.

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