Transitional role of risk and uncertainty on bank-based versus market-based relationship: evidence from MENA region

The study re-examines the complementarity hypothesis of bank versus market-based financial structure in developing countries during periods of heightened systemic risks in Middle East and North Africa (MENA) context. The system Generalised Method of Moments (system GMM) was used to re-examine the hypothesis using annual data from 2000 to 2020. We find evidence of a negative relationship between bank-based financial structure and market-based financial structure during the period of heightened systemic risk. We argue that the result could be explained by the amplitude of systemic risk during financial crises and economic policy uncertainty that is higher in bank-based than in market-based financial structure. The finding of this study brings to the fore, the importance of mainstreaming policies that moderate the distortionary effect of systemic risks on the evolution of the financial structure.