Financial Deepening and Economic Growth in Gulf Cooperation Council Countries

Abstract

The aim of this paper is to investigate the causal relationship between financial development and economic growth in GCC countries for the period 1980-2010. To this end we use a multivariate vector autoregressive (VAR) framework by including investment as an additional variable to the finance and growth nexus. Our empirical analysis is based on a modified version of the Granger non-causality test by applying the Toda and Yamamoto procedure. The overall empirical results reveal that financial development contributes significantly to economic growth in the GCC context. Our results could be of great interest for policymakers since the financial sector could play a crucial role in lowering the dependence of the governments to oil revenues and could contribute significantly to spur economic growth.JEL classification: E44-G10-O16

Causal Relationship between Economic Growth, Financial Deepening, Foreign Direct Investment and Innovation: Evidence from China

“…The result creates a positive sense to deepen the financial sector of China. This cointegration result is consistent to the arguments of Levine (2003); Anwar and Sun (2011) and the findings of Fang and Jiang (2014); Hamdi et al (2014); Jahfer and Inoue (2014); Tan et al (2017). China should also look into the inward foreign direct investment-friendly policies because as per our investigation results annual foreign direct investment inflows (LIFDI) can also raise the GDP by 0.22% through a 1% increase in FDI inflow in the long run, as the coefficient of LIFDI is positive and significant at 1% level of significance (Sun and Parikh, 2001;Makun, 2017).…”

“…Financial deepening and financial development used interchangeably in the financial economics literature (Anwar and Sun, 2011;Hamdi et al, 2014;Trabelsi and Cherif, 2017) is thought to be one of the influential forces for economic growth (Krah et al, 2014;Mhadhbi, 2014;Ghildiyal et al, 2015;Durusu-Ciftci et al, 2017;Pradhan et al, 2017;Silva et al, 2017;Capolupo, 2018) for both developed and developing economies (Adeniyi et al, 2015). In the presence of conflicting arguments regarding the direction and extent of causality, researchers conclude that finance directs real growth through accumulation of capital and enabling long-run investment (Soedarmono et al, 2017) accumulation and allocation of finance across the supply and demand sides of the economy (Silva et al, 2017) mitigation of transactions costs (Hoffman et al, 2015) information acquisition and processing, corporate governance efficiency (Abedifar et al, 2016) mobilization of saving, technology transfer and reducing risk (Ahmed and Mmolainyane, 2014) cheap financing for borrowers through banking channel efficiency (Rahman et al, 2017).…”

Bank Credit Maturity Structure and Economic Growth in Saudi Arabia

“…The scholars attributed this positive role of bank credit in the Saudi economy to the good management of banks' financial resources by allocating them to large investments to promote economic growth. The results by Hamdi et al (2014) revealed a positive relationship between credit to the private sector and economic growth in the GCC, as the financial sector began to positively impact the economies of the GCC through the allocation of credits and financing of small and medium-sized enterprises.…”

The links between financial depth and economic variables: evidence from Poland

“…In more recent years, however, literature is more accepting of the first two views. The terms financial deepening and financial development have been used interchangeably in JRF 24,4 existing literature (Anwar and Sun, 2011;Hamdi et al, 2014;Trabelsi and Cherif, 2017). Financial deepening is widely believed to be one of the influential forces for economic growth in all economies, developed and developing alike.…”