Financial liberalization effect in Algeria during the period 1980 – 2016: Application of the VECM model

Abstract

Since the early 1980s, most developed countries are based on the financial liberalization process to increase their economic growth. However, this experience is often accompanied by a banking crisis that undermined the objectives of financial liberalization. The objective of this study is to assess the impact of financial liberalization on the economic growth rates in Algeria, with some financial and macroeconomic conditions. In the study, we used the cointegration method and the Vector Error Correction Model, during the period 1980- 2016. The results show that there is an inverse relationship between Algeria's financial liberalization policy and its economic growth. This article also shows that, under certain conditions, more external liberalization is low, more a banking crisis can occur. With regard to the private loan, it has a negative relationship with economic growth, which indicates that the Algerian government does not provide credit facilities. The results also indicate a positive relationship between trade openness and economic growth