The Complexity of Financial Development and Economic Growth Nexus in Syria : A Nonlinear Modelling Approach with Artificial Neural Networks and NARDL Model

The main objective is to examine the complex relationship between financial development and economic growth in Syria for the period of 1980-2018, using the Artificial Neural Network VAR model, the Non-Linear Causality test using Artificial Neural Networks, the Nonlinear Autoregressive Distributed Lag (NARDL) model and the Cumulative Dynamic Multiplier (CDM). The findings show that the linear trend fails to capture most of the data on financial development and economic growth variables, indicating a need for nonlinear modelling techniques. The Artificial Neural Network VAR model predicted the production variable after training and proved the relationship between the two variables to be Non-Linear. The Non-Linear Causality test using Artificial Neural Networks on the data indicated that there is a Non-Linear causality from Financial Development to Economic Growth. The NARDL (1, 1, 0, 1, 1) model is found to be the best model based on the Akaike information criterion (AIC) and various diagnostic tests. The results suggest a long-term equilibrium relationship and a short-term dynamic relationship between financial development and economic growth in Syria. The study finds that positive shocks to financial development have a greater and longer-lasting impact on economic growth compared to negative shocks, indicating that the relationship between financial development and economic growth is not symmetrical. Additionally, the research reveals that the relationship between financial development and economic growth is Non-Linear, with the effect of financial development on economic growth not constant across different levels of financial development. These findings support the lately studies in Finance that the relationship between financial development and economic growth is Non-Linear. Also, it supports Finance Led Growth Theory and contradict the hypothesis that "too much finance harms economic growth." The research provides important implications for policymakers in Syria, who should focus on creating an environment that is conducive to positive shocks to financial development and taking a long-term perspective when developing policies related to financial development and economic growth