The bootstrap approach to Toda-Yamamoto (1995) modified causality test is applied in a rolling window of fixed size onto Egyptian data during 1960-2016 to examine time-varying links between economic growth (EG) and bank-based financial development (BBFD). The ratio of credit provided to private business sector to GDP is used as a proxy for BBFD whereas real GDP is employed as a proxy for EG. Full sample results indicated the existence of unidirectional causality running from BBFD to EG, however; instability tests revealed the presence of structural breaks. Given the misleading inferences made using the full sample, the rolling window procedure is applied. Bidirectional time-varying causality between EG and BBFD was detected. Reasons behind declining the fraction of credit provided to private business sector to GDP in recent years include, mainly, credit crunch and expansion of credit to the government and partially to economic slowdown. Adoption of fiscal reforms (i.e. adopting sound energy pricing mechanism to help alleviate the impact of changes in the oil import bill on the petroleum products subsidy bill that account for a significant percent of public expenditure) is required to to enhance the role of banking system in promoting economic growth. Moreover, it is of crucial importance to promote innovative financial tools suitable for the needs of small and medium-sized enterprises. An important measure to help evaluate the creditworthiness of potential borrowers was taken in August 2005 when the CBE issued rules and procedures for the licensing of credit bureaus. The first credit bureau was established in September 2005 under CBE supervision. Credit bureaus help banks improve their risk management and, hence, reduce the volume of NPLs by sharing information on borrowers.
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