The Effects of External Financial Shocks on Financial Integration and Economic Growth: A VAR Approach for Maghreb Countries

The main objective of this paper is to quantify the importance of external shocks in domestic and external variables fluctuations for a sample of three North African countries (Algeria, Morocco, and Tunisia) using a VAR model estimation with quarterly data during the period 1990-2010. Since the early 1990s, Maghreb countries have implemented these last year, structural liberalization policies and modernized banking and financial regulations in order to strengthen their financial systems, establish an economic union between them and improve their economic growth rates. Accompanying to these developments, the study of this relationship has been largely analyzed in the literature. In fact, several theoretical and empirical studies have been elaborated to understand the process of international banking and financial shocks and their impact on economic development of countries as well as on the ability to create economic integration between them. Results find that external shocks negatively affect economic growth of Maghreb countries and impede the implementation of financial integration project. In addition, we document the dynamic response of each studied variable to external financial stress in these economies. Our results on variance decompositions and impulse responses functions show that Maghreb countries appear especially sensitive to the trade and the financial channel.