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This study aims to highlight the importance of financial development in promoting the transition of Arab countries towards a knowledge-based economy, by creating infrastructure, financing, encouraging innovation and investment in education and other pillars of knowledge-based economy. This is though an econometric study of the interaction between the indicators of financial development and the knowledge-based economy on a sample of Arab countries for the period 2000-2018, using the dynamic panel data analysis approach, based on Pedroni Residual Cointegration Test and the error correction model of Panel data to reveal the existence of a long-run cointegration relationship between the study variables within the framework of the Panel-ARDL model.
The results of the study showed a long-run cointegration between financial development and the knowledge-based economy in the sample studied, where the expanded money supply negatively affects the orientation towards the knowledge-based economy. Both market capitalization ratios and domestic credit to the private sector have a positive impact on this trend. However, the short-run impact relationship appears opposite to all the variables representing financial development other than domestic credit to the private sector, which remains positive in the long and short-run.
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