Finance or Capabilities? Why the Finance-Growth Question Is Mismeasured in the MENAT Region

Three decades of research on finance and growth in the Middle East and North Africa disagree with one another. This paper argues the disagreement is manufactured by measurement and identification, not by the economies themselves. A transparent coverage rule fixes the sample at ten MENAT economies (the Middle East and North Africa plus Turkiye) over 1995-2021, and cointegration is assessed with a factor-based test suited to the data's strong common movements. Bank-ratio finance proxies carry only a weak and unstable long-run signal: the within-country correlation between the ratio and remittances has no common sign across economies, and the remittance term beside the ratio coefficient switches sign and significance across samples, so no stable estimate can be anchored on the ratio. Reframing the object of measurement resolves the impasse. A capabilities factor combining the multidimensional financial-institutions index with schooling carries a long-run elasticity of 0.16 to 0.24 per standard deviation, agreeing across pooled mean group, dynamic fixed effects with cross-sectionally robust errors, group-mean fully modified least squares, and a dynamic common correlated effects estimator reading the relationship through common factors. Trade openness contributes robustly across specifications. Policy that treats finance and education as separate levers asks the region the wrong question.