The Role of Institutional Quality in Finance- Growth Nexus : Empirical Evidence from Algeria (1980-2023)

Abstract

This article studies the effect of financial development on economic growth through the quality of institutions. Using a cointegration approach based on the autoregressive distributed lag (ARDL) model over the period from 1980 to 2023, the results obtained show that the direct effect of financial development on growth is negative. Moreover, the effect of financial development on economic growth becomes positive and significant when financial development is conditioned by the level of institutional development. This means that the quality of institutions contributes to the improvement of the effect of financial development on economic growth in Algeria. We recommend that the authorities try to improve the quality of institutions by creating favorable conditions for the fight against corruption, better bureaucracy, and political stability, which will contribute to the development of the financial system.