The impact of financial development on economic growth. The impact of financial sector development on economic. Financial development and economic growth in uganda. Pdf this paper aims to investigate the longrun relationship between. Comparison of financial depth in developing asia versus oecd 10 b. In this article, we discuss some of the determinants of financial structure, and how that structure might affect economic growth.
Abstract this report provides empirical evidence on the relation ship between financial development and economic growth in the european union and the euro area. But under different conditions, similar rates of growth can have very different effects on poverty, the employment prospects of the poor and broader indicators of human development. In section 3, i briefly present the data, its properties, and the econometrics model applied in this paper. Financial development, financial openness, and economic. The results support the mckinnonshaw hypothesis, which suggests that.
Specifically the paper aims to investigate the direction of causality between. There is even evidence that the approach focuses on the ties between growth and the level of financial development is a good predictor of quality of the functions provided by the financial system. This article examines the impact of financial development on economic growth, with consider other variables affecting the economic growth, such as ratio of. Jones stanford gsb, stanford, ca, united states nber, cambridge, ma, united states contents 1. The sector is characterized by low investment requirement, operational flexibility, location wise mobility, and import substitution. Results indicate that the type of financing fund receiver matters in the financial depth growth link. The importance of financial sector development for growth and. Second, because financial markets are forwardlooking, financial development in 1960 may be the consequence of anticipated economic growth of the next few decades. The data cover the regressions according to the maximum of 110 countries and at least 10. We employ a dynamic panel data analysis for 88 countries over the period of 1973 to 2005. The relationship between financial development and economic growth has recently received emphasis from numerous theoretical and empirical studies in both developed and developing countries. The importance of financial sector development for growth. Most empirical models generally indicate that welldeveloped financial markets enhance the efficiency of resource allocation and faster longrun growth via several channels. Previous research conducted focusing on the latin american region found support for both a negative and a positive impact of financial development on economic growth.
Financial intermediation credit to private sector, stock market and financial reforms exert significant positive impact on. Using data from 286 chinese cities over the period 20012006, this paper investigates the relationship between financial development and economic growth at the city level in china. This paper addresses the issue whether excessive liberalization has caused the financial development to lose its effectiveness in generating economic growth. This paper aims to empirically investigate the links between financial development and growth. Focusing on groups of highincome countries oecd, eu, and emu, this study shows that the finding of a nonlinear, humpshaped impact of financing on economic growth is robust to controlling for financing composition in terms of the sources bank credit, debt securities, stock market and the recipients of finances households, nonfinancial and financial corporations, or both. In this reverse causality view, financial development may be a mere leading indicator of economic growth rather than a cause. Finally, we consider specifications merged both nonlinearity. Foreign banks, financial development, and economic growth. Pdf foreign banks, financial development, and economic. Financial development and growth linkedin slideshare. Strong economic growth therefore advances human development, which, in turn, promotes economic growth. Our results are robust to changes in the financial development indicators and disaggregation of financial liberalization index. Financial development and economic growth econstor. Financial development and economic growth 689 lief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential side show, responding passively to economic growth and industrialization.
Cline, 2015 stock market development and economic growth in india. In section 3, i briefly present the data, its properties, and the. Syngrou 6, 17671, athens, greece bdepartment of economics, athens university of economics and business, athens, greece. Finally, by taking logarithms and derivatives of equation 1 and combining it with. A growing body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that. The assumption that there is a uniquely correct or at least a uniquely appropriate definition of economic growth, openly invites a very fundamental type of criticism. It discusses the results of an empirical analysis between both variables and economic growth. Again, odhiambo 2008 with ardl bound testing procedure tested the dynamic causal relationship between stock market development and economic growth for south africa with data from 19712007. The purpose of this paper is to provide a theoretical framework that integrates the endogenous growth and functions of financial markets and institutions theory in order to investigate how the financial market and the banking sector develop indicators that affect economic growth in these countries. All financial systems combine bankbased and marketbased intermediation. Introducing a new broadbased index of financial development1 prepared by katsiaryna svirydzenka authorized for distribution by petya koeva brooks january 2016 abstract there is a vast body of literature estimating the impact of financial development on economic growth, inequality, and economic stability. As was hypothesized by schumpeter 1934 and supported by king and levine 1993 with numerous papers thereafter, differences in the level of the development of financial systems affect economic growth differentials among countries. Financial integration, financial development and economic.
D, hcib department of accountingfinance, faculty of management and social sciences, godfrey okoye university, enugu. In the theoretical part of the paper, by developing a solowswan growth model augmented with financial markets in the tradition of wu, hou, and cheng 2010, we show that debt from credit markets and equity from stock markets are two long run determinants of gdp per. Financial structure and growth bank for international. Although the two are interdependent pro cesses, economic development as described by amos and flammang appears to be the more fundamental and basic process. The economic growth is also the process that allows the receding of phenomena with a negative economic and social impact, like unemployment or inflation. Qatars first bank merger to support economic growth. Impact of financial development on economic growth in iran. This debate has broadened the definitions and goals of development but still needs to define the important interrelations between human development hd and economic growth eg. The importance of financial sector development for growth and poverty reduction financial sector team issued by the policy division, department for international development august 2004 the views expressed in this working paper do not necessarily reflect official policies. This study seeks to verify the shortrun and longrun impact of financial sector development on economic growth and also to verify the gap of financial development that separates cameroon and an emergent country like south africa. The results indicate that the positive effect of financial development on longrun growth continues to decline as the financial sector becomes more liberalized. This study contributes to understanding the role of financial development on economic growth theoretically and empirically.
In recent years there has been substantial theoretical and empirical work on the role that financial markets play in fostering economic growth and development. Three groups exist in the literature regarding the causal relationship between financial development and economic growth patrick 1966. Pdf same financial development yet different economic growth. Goldsmith 1969 was the first to document a positive. Financial development and economic growth 19 countries had negative growth in one or two years or even throughout the entire period e. Financial development and economic growth in the mena. Financial development and economic growth in the mena region. The causal relationship between financial development and. Financial development and growth relation experiencing a tradeoff between empirical evidence and theoretical prediction conventional growth theory highlights the importance of capital accumulation as a driving force behind output per worker and per capita gdp the indefiniteness via positive and negative effects of finance on growth. Financial development and economic growth are shown to be closely related as discussed by previous literature starting from schumpeter 1911.
Maintaining the past high rates of growth and employment will pose a. Historical perspectives on financial development and economic. Evidence from china jin zhang,a lanfang wangb and susheng wangc january, 2012 abstract. In india, the micro, small and medium enterprises please purchase pdf split merge on. An empirical analysis of developing countries eatzaz ahmad and aisha malik using a panel data set for 35 developing countries over the period 19702003, this study analyzes the role of financial sector development in economic growth and domestic and foreign capital accumulation. In summary, the accumulating body of evidence supports policy makers assessments that developing inclusive financial systems is an important component for economic and social progress on the development agenda.
Financial development and economic growth in nigeria fidelis. Theory and a survey of evidence article pdf available in journal for studies in economics and econometrics 351. Unesco eolss sample chapters knowledge management, organizational intelligence and learning, and complexity vol. Using the bound test approach, this study finds a positive long run relationship between financial development and economic growth in nigeria. Financial development, financial openness, and economic growth. As hypothesized by schumpeter 1934 and supported by king and levine 1993 with numerous papers thereafter, the varying level of development of financial systems affects economic growth. The role of financial development on economic growth has also received considerable attention at empirical level. But, obviously, a durable economic growth sustains human development. Using data from 286 chinese cities over the period 20012006, this paper investi gates the relationship between financial development and. According to leszek balcerowicz, economic growth is a process of quantitative, qualitative and. Financial development, financial openness, and economic growth this paper examines the importance of financial development and openness. Pdf financial development and economic growth in china.
But financial structure the particular blend of the two intermediation channels varies across countries. Financial development and economic growth in china article pdf available in investment management and financial innovations 123. This paper reexamines the empirical relationship between financial development and economic growth. The evidence becomes stronger and even more convincing after studies by levine 1997 and levine and zervos 1996 that find the level of financial development as a good predictor for future economic.
Economic growth and sustainable development friedrich hinterberger sustainable europe research institute, austria fred luks hamburg school of economics and policy, germany marcus stewen deutsche gesellschaft fur technische zusammenarbeit, germany keywords. What went right, what went wrong, the world bank, 2005 financial sector and growth in emerging asian economies, asian development bank, william r. The relation between financial development and economic growth is much debated. This article examines the impact of financial development on economic growth, with consider other variables affecting the economic growth, such as ratio of commercial, domestic investment and interest rate. Hence the relationship between financial development and economic growth appears to be essential. Introducing a new broadbased index of financial development.
In the section that follows we briefly discuss the theoretical arguments and the empirical evidence surrounding financial structure and economic growth. Imports results obtained using the generalized method of moments dynamic panel show that the variable that. The experience of 10 subsaharan african countries revisited anthony enisan akinlo and tajudeen egbetunde abstract. Pdf we restudy the relationship between financial development and real gdp per capita growth in 48 countries. The effect of interest rate reforms on financial development is examined using a financial deepening model, and the causal relationship between financial development and economic growth is. Evans, green, and murinde 2002 evaluate the contribution of human capital and financial development to economic growth in a panel of 82 countries using the translog production function as a framework for estimating the relationships among. Introducing a new broadbased index of financial development1 prepared by katsiaryna svirydzenka authorized for distribution by petya koeva brooks january 2016 abstract there is a vast body of literature estimating the impact of financial development.
Financial integration, financial development and economic growth. The authors survey recent empirical literature on growth and financial intermediation, which has shown that different measures of financial development are positively correlated with economic. Financial development and economic growth in tanzania. Tsionasb adepartment of economic and regional development, panteion university, leof. Although various studies have questioned the causal nexus between financial development and economic growth, most theoretical and empirical reasoning suggests a positive first order relationship levine, 1997. Financial inclusion as the provision of a broad range of high quality financial. The theory modern growth theory identifies two specific channels through which the financial sector might affect longrun growth. Mirroring a trend seen across the gulf, two lenders in qatar announced the countrys first bank merger in a move officials say will support economic growth and the development of the financial. The sample comprises a panel data from mena countries over. Financial development and economic growth jrc publications.
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