Bond markets, stock markets, banks and growth: a system GMM analysis

Abstract

Empirical studies on the finance-growth nexus largely focus on banks and stock markets to the exclusion of bond markets. Furthermore, such important events as bank crisis are neglected in most finance-growth models. The major aim of this paper is therefore to throw light at the finance growth link by accounting for bond markets and controlling for banking sector crisis using data on economic growth and financial development indicators of 36 economies comprising 21 advanced and 15 emerging economies. Applying a system generalised-method-of-moments (GMM) technique, the study revealed that bond markets rather than banks and stock markets are related to economic growth in advanced economies, and the same relationship is not found for emerging economies. It is further observed that the finance-growth link depends on the specific measures used to gauge financial development. This study also confirms previous findings that crisis dampens the finance-growth link. Two important inferences could be made from the results of this study. First, the often reported positive link between finance and growth might be caused by aggregation of countries of different economic growth and financial development. Second, the finance growth link depends on the measures of financial development used.

The Role of Macroeconomic and Financial Factors in Bond Market Development in Selected Countries

“…Limited existing literature has discussed some of the determinants of bond markets (see Adelegan & Radzewicz-Bak, 2009; Ameer, 2007; BIS, 2002; Braun & Briones, 2006; Burger & Warnock, 2004; Fanta, 2017; Fink, Haiss, & Hristoforova, 2003; Godlewski, Turk-Ariss, & Weill, 2013; Herring & Chatusripitak, 2000; Sharma, 2001; Thumrongvit, Kim, & Pyun, 2013). The focus of most of the prior studies has remained on market sentiments or firm-related characteristics of bonds, like a firm’s capital structure, bond pricing and risk and return behaviours.…”

What Determines Bond Market Development? New Theoretical Insights

“…Various studies have been conducted in the last decade to study the determinants of conventional bond markets (Adelegan & Radzewicz-Bak, 2009;Ameer, 2007;BIS, 2002;Braun & Briones, 2006;Burger & Warnock, 2004;Fanta, 2017;Fink, Haiss, & Hristoforova, 2003;Godlewski, Turk-Ariss, & Weill, 2013;Herring & Chatusripitak, 2000;Hristoforova, 2003;Kapingura & Makhetha-Kosi, 2014;Mu, Phelps, & Stotsky, 2013;Rudra P. Pradhan, Arvin, Bennett, Nair, & Hall, 2016;Sharma, 2001;Thumrongvit, Kim, & Pyun, 2013). Some of the studies find that macroeconomic factors play a significant role in the development of bond markets (Bondt, 2005;Korajczyk & Levy, 2003;Park & Shenoy, 2002).…”