What are the Financial Causes of the Lebanese Economic Crisis and How Can it be Resolved or Avoided in the Future?

Abstract

Objective: This article explores the financial crisis in Lebanon, focusing on its theoretical background and empirical causes. Its goal is to identify the economic reasons behind the crisis and propose potential solutions.   Method: This research uses a quantitative analysis based on World Bank data related to six key economic factors (Foreign Direct Investment, exports, imports, M3 Money supply, debt service, and inflation) and their connection to GDP per capita, a representation of the financial crisis.   Result: The study reveals a one-way causality between GDP and Foreign Direct Investment, imports, and M3 money supply. Long-term estimates suggest GDP is negatively affected by debt service but positively influenced by Foreign Direct Investment and M3.   Conclusion: To resolve the crisis and avoid future one, the research suggests reducing debt service, encouraging Foreign Direct Investment, and controlling the M3 money supply.