Does the depth of financial markets affect economic growth? An empirical study on the Gulf Cooperation Council GCC Countries

Abstract

This research aims to test the existence of an impact of financial market depth on achieving economic growth in the Gulf Cooperation Council GCC countries during the period 2001-2021 using annual panel data.

The composite financial market depth index issued by the International Monetary Fund, which includes multiple sub-indices to measure the size and liquidity of the financial market, was used as an independent variable, and the gross domestic product growth rate, which expresses dependent variable. In addition, foreign direct investment, technological development, and oil prices were included as control variables.

To achieve the research objective and test its hypothesis, a Fixed Effects Model (FEM) estimated using GLS Weights with cross-section SUR specifications was used, based on the results of tests comparing the three models.

The estimation results showed the absence of a significant impact of financial market depth on the economic growth rate of the GCC countries during the period 2001-2021, with a positive and significant effect of both foreign direct investment and oil prices, whereas interne penetration- as a proxy for technological development- had a negative and significant effect on this growth.