Relationship study Between banking development and economic growth in Algeria during the period (2000-2020) Using the cointegration model and the error correction model (ECM)

Abstract

This study aims to highlight the impact of the development of the banking sector on economic growth in Algeria during the period from 2000 to 2020, using the co-integration model and the error correction model (ECM). The study reached the following most important results: Depending on the Johansen test in the long term, all the variables of the study represented in (government spending, trade openness, inflation index) has a positive relationship with the rate of economic growth in Algeria, However, the banking development index measured by domestic credit provided to the private sector (BD) showed a negative impact on the rate of economic growth in Algeria during the study period. While the results of the short term, based on the ECM model, showed that the study variables maintain the same previous relationship in the long term, except for the government spending and inflation index, which had no effect on the rate of economic growth. Accordingly, the study concludes that the reason for the negative relationship between banking development and economic growth is due to the monopoly of the activities of the banking system in Algeria by public banks, which account for about 90% of the total assets, and this is what deprives the Algerian economy of an effective participation of the private sector in achieving economic growth in algeria.