The Relation between Development of Financial Sector and Economic Growth: Applied Study on Egypt, France and Malaysia

For the purpose of finding an optimal combination to finance the economic growth in Egypt, the paper examines the relation between the development of financial sector and the economic growth in Egypt, France, and Malaysia, to check the existence of this relation and to determine its direction. The econometric models used in this study are the co-integration test, the vector error correction model and the variance decomposition analysis. The main findings of this study are the existence of short and long-term relations, but with different directions, according to the development level of the country. For Egypt, the relation is moving from the development of the financial sector to the economic growth. For France, the relation is moving from the economic growth to the development in the financial sector. For Malaysia it is moving from the development of the capital market to the economic growth, and from the economic growth to the development of the banking sector.