Does financial development cause economic growth? Time-series evidence from 16 countries

Causal Relationships between Financial Development, Trade Openness and Economic Growth: The Case of Turkey

“…In opposite to Murende and Eng [43] , Demetriades and Hussein [10] found a considerable evidence of bedirectionality between financial development and growth for a set of 16 developing countries during different periods. They concluded that causality patterns have tendency to vary with countries and more specifically with the outcomes of financial reforms implemented.…”

“…The empirical work however, on the issue of causality between financial development and economic growth, to this day remains sparse [10,44] .…”

Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries

“…As the financial system becomes larger relative to GDP, the increase in risk become relatively more important, and acts to reduce stability. 13 Some earlier literature has also suggested that the effect of finance on growth is stronger for more developed countries: see for example, Demetriades and Hussein (1996), Odedokun (1996), and Xu (2000). considered by Law et al (2013), but they attempt to identify the institutional quality thresholds that may affect the finance-growth relationship.…”

“…The M3/GDP captures the amount of liquid liabilities of the financial system, including the liabilities of banks, central banks and other financial intermediaries, that reflects financial deepening, which is in turn positively related with financial services (King and Levine, 1993a/b;Demetriades and Hussein, 1996;Favara, 2003). Nevertheless, Fry (1997) and Ang and McKibbin (2007) among others argue that monetary aggregates are not good proxies for financial development since they reflect the extent of transaction services provided by the financial system rather than the ability of the financial system to channel funds from depositors to investors.…”

“…Nevertheless, Fry (1997) and Ang and McKibbin (2007) among others argue that monetary aggregates are not good proxies for financial development since they reflect the extent of transaction services provided by the financial system rather than the ability of the financial system to channel funds from depositors to investors. Therefore, credit to the private sector as a proportion of GDP is the third most widely used alternative measure of financial development (see Demetriades and Hussein, 1996;King and Levine, 1993a;Beck et al, 2000a;Favara, 2003;Liang and Teng, 2006;Arcand et al, 2011). The importance of this measure rests in the fact that it only accounts for credit granted to the private sector that enables the utilization of funds and their allocation to more efficient and productive activities.…”