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

Samargandi, Nahla; Fidrmuc, Ján; Ghosh, Somnath

doi:10.1016/j.worlddev.2014.11.010

Cited by 471 publications

(387 citation statements)

References 107 publications

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“…They submitted that in the long run, financial development significantly impacted growth. Samargandi, Fidrmuc, and Ghosh (2015) used pooled mean group estimation techniques in a dynamic heterogeneous panel setting to re-examine the connections between economic growth and financial development for a panel of 52 middle-income economies for a period covering 1980-2008, and observed that the relationship between the dual is U-shaped in the long run and insignificant in the short run. The implication is that excessive financial development beyond the optimum economic growth will have an adverse effect on growth.…”

Section: Trade Openness and Economic Growth Nexusmentioning

confidence: 99%

Economic growth, financial development and trade openness in Nigeria: An application of the ARDL bound testing approach

Lawal

Nwanji

Asaleye

et al. 2016

Cogent Economics & Finance

102

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For over a decade now, various efforts have been put in place by various governments of the developing economies to promote economic growth, financial development and expand trade with mixed results. The ability of financial development and/or trade openness to influence economic growth in the developing economies has been a subject of hot debate and remains inconclusive. While a number of scholars are of the view that compelling cointegration exists among each of these constructs, another set of substantial authors have documented that economic growth, trade openness and financial development do evolve independent of each other. Drawing from four financial developments-growth nexus theories, this study used the ARDL bound estimation techniques to examine the existence of cointegration among economic growth, financial development and trade openness in Nigeria. We intend to know what policy instruments need to be manipulated so as to achieve economic growth and financial stability. Our results show that a two-way cointegration exists between economic growth and financial development, on the one hand, as well as between economic growth and trade openness, on the other hand. We therefore recommend that in order to achieve economic growth, policymakers should pursue strong financial development and increase trade openness.

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Section: Trade Openness and Economic Growth Nexusmentioning

confidence: 99%

Economic growth, financial development and trade openness in Nigeria: An application of the ARDL bound testing approach

Lawal

Nwanji

Asaleye

et al. 2016

Cogent Economics & Finance

102

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show abstract

“…For example, Samargandi, et al (2015) use pooled mean group estimations in a dynamic heterogeneous panel setting and demonstrate that there is an inverted U-shaped relationship between finance and growth in the long run. However, as far as we know, no paper has used the same variable settings in the cointegration relationship we are analyzing in this paper.…”

Section: ′mentioning

confidence: 99%

Do Both Demand-Following and Supply-Leading Theories Hold True in Developing Countries?

2018

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Acknowledgement:The authors are grateful to the Editor, Eugene Stanley, and seven anonymous referees for constructive comments and suggestions that led to a significant improvement of an early manuscript. The third author would like to thank Robert B. AbstractTo overcome the limitations of the traditional approach which uses linear causality to examine whether the supply-leading and demand-following theories hold. As certain countries will be found not to follow the theory by using the traditional approach, this paper first suggests using all the proxies of financial development and economic growth as well as both multivariate and bivariate linear and nonlinear causality tests to analyze the relationship between financial development and economic growth. The multivariate nonlinear test not only takes into consideration both dependent and joint effects among variables, but is also able to detect a multivariate nonlinear deterministic process that cannot be detected by using any linear causality test. We find five more countries in which the supply-leading hypothesis and/or demand-following hypothesis hold true than with the traditional approach. However, there is still one country, Pakistan, for which no linear or nonlinear causality is found between its financial development and economic growth.To overcome this limitation, this paper suggests including cointegration in the analysis. This leads us to conclude that either supply-leading or demand-following hypotheses or both hold for all countries without any exception. There will be some types of relationships between economic growth and financial development in any country such that either they move together or economic growth causes financial development or financial development causes economic growth without any exception. The finding in our paper is may be useful for governments, politicians, and other international institutions in their decision making process for the development of the countries and reducing poverty.JEL classification: G20; O40; C12

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“…Empirical results in most of the papers provide that there is a statistically significant relationship between growth and financial development indicators (Akinci Yuce, Akinci, and Yilmaz, 2014;Beck et al, 2008;Beck, Georgiadis, and Straub, 2014;Beck et al, 2000;Benhabib and Spiegel, 2000;Calderón and Liu, 2003;Caporale et al, 2015;Chen and Quang, 2014;Chen, Wu, and Wen, 2013;Chow and Fung, 2013;Christopoulos and Tsionas, 2004;Demetriades and Hook Law, 2006;Ductor and Grechyna, 2015;Dwyfor Evans, Green, and Murinde, 2002;Fisman and Love, 2004;Habibullah and Eng, 2006;Hassan, Sanchez, and Yu, 2011;Ketteni et al, 2007;Lartey and Farka, 2011;Lee and Chang, 2009;Levine et al, 2000;Li, Zhang, and Ma, 2015;Wachtel, 2000, 2002;Saci, Giorgioni, and Holden, 2009;Stengos and Liang, 2005;Zhang, Wang, and Wang, 2012). However, in some of the papers, there is no clear consensus on the relationship between financial development and economic growth for all measurements of financial development (Bangake and Eggoh, 2011;Beck and Levine, 2002;Rioja and Valev, 2004;Samargandi, Fidrmuc, and Ghosh, 2015).…”

Section: Literature Reviewmentioning

confidence: 99%

Quantile Parameter Heterogeneity in the Finance-Growth Relation: The Case of OECD Countries

Uyar¹,

Uyar²

2018

Prague Economic Papers

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This paper seeks to investigate the effect of financial development on growth in OECD countries during 1999-2014. The aim of the analysis is to study the dependence of growth on given financial development indicators along quantiles of the conditional growth distribution, taking into account the effect played by each country over time. For the purpose of the empirical analysis, it performed the instrumental variable quantile regression panel data (IV-QRPD) model suggested by Powell (2016). The findings of IV-QRPD model indicated that the effect of finance on growth is changing along quantiles of the conditional growth distribution. That is to say, we provide some evidence that high-growth OECD countries react to the changes in financial development less than low-growth countries.

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

Cited by 471 publications

References 107 publications

Economic growth, financial development and trade openness in Nigeria: An application of the ARDL bound testing approach

Economic growth, financial development and trade openness in Nigeria: An application of the ARDL bound testing approach

Do Both Demand-Following and Supply-Leading Theories Hold True in Developing Countries?

Quantile Parameter Heterogeneity in the Finance-Growth Relation: The Case of OECD Countries

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