Effects of Macroeconomic Volatility on the Financial Sector Performance in the Selected MENA Countries

Abstract

In recent times, there has been growing concern in the enquiry into the effects of macroeconomic volatility on financial sector performance in the MENA economies. This concern grew especially in this recent time due to great efforts devoted to financially integrating MENA economies with the rest of the world and the emergence of this region as a potential substitute to East Asia, in the wake of the East Asian financial crisis of the mid 1990s Empirically, the study assessed the effects of macroeconomic volatility on the financial sector performance in the MENA economies from 1996 to 2016. It also assessed the direction of the causality between macroeconomic volatility and financial sector performance using secondary data sourced from the World Bank development indicator for the analysis. The regression results were obtained using the Panel Autoregressive Distributed Lag Model (PARDL) method which shows that measures of macroeconomic performance have a statistically significant effect on financial sector performance and a conclusion was drawn that macroeconomic volatility has negative effects on financial sector performance in the MENA economies. The result was analyzed in line with the possible policy implications and valid recommendations were made based on the policy implications of the findings.