Does Stock Market Liberalization Spur Economic and Financial Development in the Mena Region?

21 Pages Posted: 3 Oct 2007 Last revised: 17 Apr 2014

See all articles by Sami Ben Naceur

Sami Ben Naceur

International Monetary Fund (IMF)

Samir Ghazouani

Higher School of Statistics and Information Analysis (ESSAI)

Mohammed Omran

The Insurance Holding Company; Arab Academy for Science and Technology

Date Written: October 1, 2007


In order to investigate the impact of financial market liberalization on economic growth in the MENA region, we need to replace our contribution in the economic growth literature. Our study is related to the literature on policy impacting growth rather than the debate on "convergence" between low-income and high-income countries which dominates the current research on economic growth. Our study is one of the few studies that focus on MENA countries. Several issues are addressed about the impact of stock market liberalization on economic growth. Using annually data from 11 MENA countries over the 1979-2005 period, the empirical results indicate that stock market liberalization has no effect on economic and investment growth whereas the impact on stock market development is negative in the short-run but turns positive in the long-run. However, when we include certain pre-conditions for liberalizing the stock market, we find that a more developed stock market prior to liberalization, less government intervention and by not fully opening the economy to foreign trade reinforces the positive impact of liberalization on stock market development. These results could have some important policy implications; in which domestic financial reforms should precede policies that aim at liberalizing the stock market. This is not only easier and faster to accomplish, but from a policy sequencing perspective it pays to reform the trade regime before liberalizing fully the (portfolio component of the) capital account. In conclusion, reforms should first and foremost start in the domestic economy before open it full to foreign participation. Our results are robust to several specifications.

Keywords: Stock Market Liberalization, Economic and Investment Growth, Financial and Banking Sector Development, Dynamic Panel Data, MENA Countries

JEL Classification: G21, G28

Suggested Citation

Ben Naceur, Sami and Ghazouani, Samir and Omran, Mohammed M., Does Stock Market Liberalization Spur Economic and Financial Development in the Mena Region? (October 1, 2007). Journal of Comparative Economics, Vol. 36, pp. 673-693, 2008, Available at SSRN:

Sami Ben Naceur (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Samir Ghazouani

Higher School of Statistics and Information Analysis (ESSAI) ( email )

6, Rue des métiers
Charguia II, 2035
+216 70 839 440 (Phone)
+216 70 838 170 (Fax)

Mohammed M. Omran

The Insurance Holding Company ( email )

7 Talet Herb Street

Arab Academy for Science and Technology ( email )

P.O. Box. 1029
College of Management and Technology
Miami, Alexandria
(203) 5482 532 (Phone)
(203) 5566 072 (Fax)

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