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Assessing the determinants of banking stability in the MENA region: what role for economic and financial freedom?

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Journal of Banking Regulation Aims and scope Submit manuscript

Abstract

The main objective of this paper is to investigate the effects of economic freedom and financial freedom on bank stability in 12 Middle-East and North Africa region countries during the period 2005–2020. Using an empirical approach based on the System Generalized Method of Moments, our results reveal that economic freedom, financial freedom, investment freedom and business freedom increase bank stability. A high degree of economic freedom promotes innovation and entrepreneurship and, hence, leads to economic growth and better banking stability. In contrary, we confirm that monetary freedom negatively affects bank stability. The same result was confirmed for the two sub-samples of Middle Eastern countries and North African countries.

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Source: Author based on Thomson Reuters and Heritage Foundation databases

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Source: Author based on Thomson Reuters and Heritage Foundation databases

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Availability of data and materials

Datasets used in this paper are available in the Bankscope, Thomson-Reuters, and World Bank Indicators databases.

Notes

  1. A natural logarithm transformation of the Z-score is very useful for a skewed and higher value.

  2. Heritage Foundation Definition.

  3. The measure of economic freedom is scored on a scale of 0 to 100, and a country's overall score is determined by taking the average of the 12 economic freedoms sub-indicators.

  4. Heritage Foundation Definition.

  5. Based on the definition of Heritage foundation, a high score closes to 100 reflects negligible government interference. A score of 50 indicates the existence of considerable government interference in the provision of credit and significant restrictions on the ability of financial institutions to offer financial services. A low score below 50 implies the existence of repressive policies with strong or extensive government control over central banking and credit allocation.

Abbreviations

BS:

Business freedom

BSTAB:

Bank stability

EF:

Economic freedom

FATF:

Financial action task force

FF:

Financial freedom

GDP:

Gross domestic product

IF:

Investment freedom

ME:

Middle-East

MENA:

Middle-East and North-Africa

MF:

Monetary freedom

NA:

North Africa

NIM:

Net interest margin

PSTR:

Panel smooth threshold regression

WGI:

World governance indicators

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  1. Faculty of Law Economics and Management of Jendouba, University of Jendouba, Jendouba, Tunisia

    Nesrine Djebali

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  1. Nesrine Djebali
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Correspondence to Nesrine Djebali.

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This manuscript has not been published elsewhere in part or in entirety and is not under consideration by another journal. All study participants provided informed consent, and the study design was approved by the appropriate ethics review board. I have read and understood your journal’s policies, and I believe that neither the manuscript nor the study violates any of these.

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Appendices

Appendix 1

See Table

Table 8 Variables Description.
Full size table

8.

Appendix 2

See Table 9.

Table 9 Correlation matrix
Full size table

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Djebali, N. Assessing the determinants of banking stability in the MENA region: what role for economic and financial freedom?. J Bank Regul (2023). https://doi.org/10.1057/s41261-023-00220-z

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