Financial Development, Economic Performance and Democracy
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This paper investigates the long-term effect of financial development on economic growth using annual data for 67 countries over the period 1971 to 2007. Both autoregressive distributed lag (ARDL) and cross-sectionally augmented autoregressive distributed lag (CS-ARDL) models are applied to count for crosscountry heterogeneity and error cross-country dependence. The results uphold a positive and significant effect of financial development on long-run per capita output. There is also some evidence of a non-linear relationship between financial development and growth. However, the analysis also reveals that the results derive primarily from non-democratic countries.Keywords:
Distributed lag
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In earlier times economic growth is commonly discussed in terms of real GDP per capita, industrial output, capital, labor force, educational growth, savings, investments, inflation and trade openness of the country. Including all the factors, financial development plays a crucial role for country's economic growth. It is a multidimensional concept and constitutes a potentially important mechanism for long run economic growth. The study makes use of the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) methods for unit root test and the variables were found to be stationary, though not in their level form but in their first difference. Autoregressive Distributed Lag (ARDL) bound testing approach to co-integration techniques and Error Correction Model (ECM) is used for long run and short run causality in Indian time series data covering the period from 1980 to 2011. The paper finds a co-integration relationship between financial sector development and economic growth. It concludes that financial development can be interpreted as one of the long run determinants of economic growth, not vice-versa.
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This study aimed to scrutinize the impact of financial development, energy consumption, industrialization, and trade openness on economic growth in Indonesia over the period 1984–2018. To do so, the study employed the autoregressive distributed lag (ARDL) model to estimate the long-run and short-run nexus among the variables. Furthermore, fully modified ordinary least squares (FMOLS), dynamic least squares (DOLS), and canonical cointegrating regression (CCR) were used for a more robust examination of the empirical findings. The result of cointegration confirms the presence of cointegration among the variables. Findings from the ARDL indicate that industrialization, energy consumption, and financial development (measured by domestic credit) positively influence economic growth in the long run. However, financial development (measured by money supply) and trade openness demonstrate a negative effect on economic growth. The positive nexus among industrialization, financial development, energy consumption, and economic growth explains that these variables were stimulating growth in Indonesia. The error correction term indicates a 68% annual adjustment from any deviation in the previous period’s long-run equilibrium economic growth. These findings provide a strong testimony that industrialization and financial development are key to sustained long-run economic growth in Indonesia.
Industrialisation
Openness to experience
Distributed lag
Ordinary least squares
Consumption
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Ab s t r a ct Purpose: Financial sector is a vital segment of an economy. To elucidate its role in economic growth, this paper empirically examines its role for Asian countries. We examine and quantify this long run relationship for a sample of 12 Asian countries with data on relevant variables for a large time dimension (1970 to 2012). Methodology: Panel Autoregressive Distributed Lag model (ARDL) is used to find long run relationship. Panel ARDL being a heterogeneous panel estimation technique allows the slope and short run parameters to vary across the countries. Findings: Results show the presence of long run relationship between financial development and national income. The positive contribution of financial development is quantified using Fully Modified OLS and dynamic OLS as well as. Bi-causality is also found between financial development and economic growth. Recommendations: Recommendations are made on the basis of empirical analysis.
Distributed lag
Ordinary least squares
Financial sector development
Causality
Sample (material)
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This study investigates the relationship between financial development, international trade and economic growth for Australia over the period of 1965 to 2010. The autoregressive distributed lag (ARDL) bounds testing approach to cointegration is applied to examine the long-run relationship among the series, whereas stationarity properties of the variables are tested by applying two structural break tests. Results confirm the long-run relationship among the variables. Financial development, international trade, and capital appear as the drivers of economic growth in short and long runs. The feedback effect exists between international trade and economic growth. Financial development Granger causes economic growth validating supply-side hypothesis.
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The paper examined the empirical relationship between economic growth and financial development (FD) in Kenya over the period 1980–2011. The long-run and short-run parameters were estimated by use of autoregressive distributed lag (ARDL) bounds testing approach for co integration analysis. To determine the direction of causality, Granger causality analysis was done. Empirical findings indicate that there is stable long-run relationship among, financial development, trade openness and economic growth in Kenya. It also finds that financial development has a significant positive effect on economic growth. The magnitudes of the ECT coefficients suggest that the speed of adjustment in each of the estimated model is very high. The Granger causality tests showed that there is bi-directional causality between financial development and economic growth in Kenya for the period under study (1980–2011). This result therefore, supports both the supply leading, and demand following hypotheses. This means that financial development accelerates and augments economic growth in Kenya and that economic growth leads to development of the financial sector in Kenya. Thus, the government should strengthen the reforms in the financial sector so as to attract investors and improve the efficiency of all production activities in the country. At the same time, the government should enhance macroeconomic policies; fiscal policies, policies that attract foreign direct investment, and export promotion policies that on average lead to economic growth should.
Distributed lag
Openness to experience
Causality
Promotion (chess)
Financial sector development
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There are different evidences in the literature regarding the relationship between financial development and economic growth. Some studies have found bidirectional causality, others a unidirectional relationship while some found no causality between the two variables. The aim of this study was to see the direction of causality and to investigate the existence of a long run relationship between financial development and economic growth in Ethiopia. We use two variables namely private sector credit as percentage of GDP and broad money supply as percentage of GDP to indicate financial development and employ Auto Regressive Distributive lag Model( ARDL) to Bounds Testing to examine the long and short-run impact of financial development on Economic growth and Granger Causality Tests has conducted by using Vector error correction Model . The Bound test results suggest that long-run relationships exist between economic growth and both financial development indicators as well as other explanatory variables. Moreover, our findings support both supply leading and demand following hypotheses. The direction of the short-run and long-run causal relationship between economic growth and financial development depends on which financial development indicator is used. Particularly, improvements in financial development indicators related to the resource allocation function of the financial system lead to economic growth whereas economic growth causes financial development through increasing banks’ assets in the long run.
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In this study, the relationship between financial development and economic growth is examined in an Autoregressive Distributed Lag (ARDL) framework, for Pakistan, utilizing annual data over the period 1961–2005. The main empirical findings suggest that in the long and short run, financial development and investment exerted a positive impact on economic growth. The findings also suggest that in the long–run, real deposit rate is positively related to economic growth but exerted an insignificant impact; however, in the short–run, the relationship between real deposit rate and real output is significant. The long– and short–run responses of the real interest rate are very low as compared to financial development variable, implying that the availability of funds is more important than their cost. To achieve sustainable eco–nomic growth, the study suggests a further acceleration of liberalization process in Pakistan with confidence and strong commitment.
Distributed lag
Investment
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The present article aims to examine the link between financial development and economic growth in Nepal covering the period from 1979 to 2018. The study applies the method of Auto-Regressive Distributed Lag (ARDL) bound test cointegration approach to investigate both the long and short runs relationship among the variables. The empirical results found that the long-run cointegrated relationship between financial development and economic growth in Nepal. The findings clearly shows that financial development has a positive impact on economic growth both in the long-run as well as the short-run, which suggests that financial development has been a key contributor and an important engine of growth performance in the Nepalese economy. Moreover, the results may help policy makers to take into account financial development variable as an instrument for economic growth in the country.
Distributed lag
Financial sector development
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This study examines the relationship between openness, financial development, and economic growth in Algeria using the autoregressive distributed lag (ARDL) cointegration framework. The results based on the bounds testing procedure confirm that a long-run relationship between openness, financial development, and economic growth exist. Data were obtained from the World Bank Development Indicators for the period of 1980 to 2010. Importantly, our results reveal that, openness has a significantly positive effect on economic growth. Broad money which is a proxy for financial development in this study is positive but insignificantly related to economic growth. Also, both labor force and gross capital formation are insignificant. These findings suggest a dire need for financial reforms in Algeria inorder to improve efficiency in the financial sector so as to stimulate saving/investment and thus, long-term economic growth.
Distributed lag
Openness to experience
Proxy (statistics)
Broad money
Investment
Financial sector development
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The relationship between financial development and economic growth has been subject to considerable debate in the literature of development and growth. While empirical studies often provide a direct relationship between
financial development proxies and growth, much controversy remains about how these results should be interpreted. The study, therefore, attempts to unravel the causality direction of financial development and economic growth.
We used an Autoregressive Distributed Lag (ARDL) method to assess the finance-growth relation taking Gross National Expenditure, Gross Fixed Capital Formation, exports, Foreign Direct Investments and Loans made to the Private
Sector as financial development indicators for Singapore over the period from 1970 to 2013. Interestingly, we found that our financial development variables had no impact on economic growth.
Distributed lag
Financial sector development
Causality
Broad money
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