Finance-Growth Nexus: transmission canals and the role of alternative finance

Abstract

Thanks to its geographical position and its natural resources, Morocco has great assets and an important growth potential. Nonetheless, the country has experienced a slowdown in its annual growth rate, which went down from an annual average of 4.8%, between the year 2000 and 2009, to an annual average of 2.8%, between 2018 and 2019 (General Report of the Specialized Commission on the Development Model, April 2021). This economic slowdown can mostly be traced down to the lack of financial resources made available to innovative and high added value companies. In a survey conducted in 2019 upon national companies, the Moroccan High Commission for Planning (HCP) reports that 74% of the companies refer to lack of financial resources as the main obstacle to investment, and 68% of them consider it to hinder their activity’s development. Despite the development of the Moroccan banking sector and financial markets, the access to finance still constitutes a challenge to the Moroccan companies’ development. For this purpose, alternative financial instruments should be developed.

Through analyzing the theoretical and empirical financial literature, the current article studies the role of the financial sector’s efficiency on economic growth, with an emphasis on the importance of alternative finance. First, we demonstrate the impact of the financial sector’s development on the optimal allocation of resources toward growth-promoting projects. Then, we focus on the different alternative sources of finance, such as Private Equity, microfinance and Islamic finance, and their role in economic growth. Finally, we offer a preview of the Moroccan context.

JEL Classification: G21, G23, G24, E22, E44

Paper type: Theoretical Research