Interaction Between Financial Development and the Knowledge-Based Economy of a Sample of Arabic Countries

Abstract

This study aims to highlight the importance of financial development in promoting the transition of Arab countries towards a knowledge-based economy, by creating infrastructure, financing, encouraging innovation and investment in education and other pillars of knowledgebased economy. This is though an econometric study of the interaction between the indicators of financial development and the knowledge-based economy on a sample of Arab countries for the period 2000-2018, using the dynamic panel data analysis approach, based on Pedroni Residual Cointegration Test and the error correction model of Panel data to reveal the existence of a longrun cointegration relationship between the study variables within the framework of the Panel- ARDL model. The results of the study showed a long-run cointegration between financial development and the knowledge-based economy in the sample studied, where the expanded money supply negatively affects the orientation towards the knowledge-based economy. Both market capitalization ratios and domestic credit to the private sector have a positive impact on this trend. However, the shortrun impact relationship appears opposite to all the variables representing financial development other than domestic credit to the private sector, which remains positive in the long and short-run