The finance–growth nexus in crisis

Breitenlechner, Max; Gächter, Martin; Sindermann, Friedrich

doi:10.1016/j.econlet.2015.04.014

Cited by 57 publications

(83 citation statements)

References 12 publications

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“…More interestingly, in Set (2), both fi and fi 2 are positive and significant, which suggests that financial institutions have a linear relationship to economic growth. This differs from recent studies that show financial development to be nonlinear and exhibit a U-shaped curve on economic growth (Breitenlechner et al 2015;Rousseau and Wachtel 2011). The linear relationship between financial institutions and growth in the ASEAN economies highlights the importance of banking sector in the region and suggests the effectiveness of the current policies implemented in the region (Almekinders et al 2015).…”

Section: Resultscontrasting

confidence: 59%

“…Financial systems reduce information and transaction costs which allow intermediaries and markets to mobilise savings, allocate resources and facilitate risk management leading to capital accumulation and technological progress for economic growth (Levine 1997). However, a number of studies have suggested that the role of finance in economic growth is weakening and, in some cases, negative, as there may be other factors, such as institutional quality that influences the positive effects of finance on growth (Breitenlechner et al 2015;Rousseau and Wachtel 2011). Therefore, the initiatives of the ASEAN economies to push financial development and integration make it a compelling study for the examination of the relationship between finance and growth, particularly as there are recent studies that provide evidence against the positive effects of finance.…”

Section: Introductionmentioning

confidence: 99%

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Examining the relationship between finance, institutions and economic growth: evidence from the ASEAN economies

Haini

2019

Econ Change Restruct

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This study investigates the role of financial and institutional development on economic growth in the Association of Southeast Asian Nations (ASEAN) economies from 1995 to 2017 using a dynamic panel estimator. Financial development is instrumental in promoting economic growth; however, the effect of financial institutions and financial markets can differ. In recent years, the ASEAN economies have launched financial and institutional integration initiatives towards the goal of an integrated ASEAN Economic Community, which can have a profound impact on economic growth. The estimated results show that financial institutions are positive and significant towards economic growth, while financial markets are insignificant. Equally important, institutional quality plays a significant and positive role in economic growth. More interestingly, the study finds that institutional development is complementary to financial institutions and markets. Member states should emphasise on further financial integration across the ASEAN economies, allowing for the development of financial institutions and markets alongside improvements in institutional quality to increase the effectiveness of financial development.

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Section: Resultscontrasting

confidence: 59%

Section: Introductionmentioning

confidence: 99%

Examining the relationship between finance, institutions and economic growth: evidence from the ASEAN economies

Haini

2019

Econ Change Restruct

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“…Accordingly, some empirical studies, for a large variety of countries and/or time periods, have emerged in recent years to assess the validity of the finance-growth nexus hypothesis in the age of financialisation. Most of these empirical studies find a weakening in the positive association between finance and economic growth or even a negative association between them (Felix Neven Valev, 2004a and2004b;Philippe Aghion, Peter Howitt and David Mayer-Foulkes, 2005; Ayhan Kose et al, 2006;Eswar S. Prasad, Raghuram G. Rajan and Arvind Subramanian, 2007;Rousseau and Wachtel, 2011; Stephen G. Cecchetti and Enisse Kharroubi, 2012;Barajas, Chami and Yousefi, 2013;Dabla-Norris and Srivisal, 2013; Thorsten Beck, Hans Degryse and Christiane Kneer, 2014;Max Breitenlechner, Martin Gächter and Friedrich Sindermann, 2015; Kizito U. Ehigiamusoe and Hooi H. Lean, 2017;Constantinos Alexiou, Sofoklis Vogiazas and Joseph G. Nellis, 2018).…”

Section: Introductionmentioning

confidence: 99%

“…Nonetheless, the majority of empirical studies on the finance-growth nexus only focus on the period until the Great Recession. Breitenlechner, Gächter and Sindermann (2015), Dilek Durusu-Ciftci, M. Serdar Ispir and Hakan Yetkiner (2017), Ehigiamusoe and Lean (2017) and Alexiou, Vogiazas and Nellis (2018) are the only exceptions, but they do not analyse this issue for the EU countries. Fourthly, the paper examines the relationship between finance and economic growth by estimating both linear and non-linear growth models, in a context where the latter have been quite neglected in the empirical literature.…”

Section: Introductionmentioning

confidence: 99%

Finance-growth nexus in the age of financialisation: An empirical reassessment for the European Union countries

Barradas¹,

Iul²

2018

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This paper draws an empirical reassessment of the finance-growth nexus by performing a panel data econometric analysis for all 28 European Union countries over 27 years from 1990 to 2016. Since the mid-1980s, the financial system has experienced a strong liberalisation and deregulation by preventing its beneficial effects on the real economy. This phenomenon, typically called financialisation, points to a negative view of finance and contradicts the wellentrenched hypothesis on the finance-growth nexus. We estimate both linear and non-linear growth models by incorporating seven proxies of finance (money supply, domestic credit, financial value added, short-term interest rate, long-term interest rate, stock market volume traded and stock market capitalisation) and five control variables (the lagged growth rate of the real per capita gross domestic product, the inflation rate, the general government consumption, the degree of trade openness and the education level of the population). Our results show that finance has impaired economic growth in the EU countries, both in the pre-crisis period and in the crisis and post-crisis periods. The enormous growth of domestic credit and of the financial value added have been restraining the economic growth of the EU countries since 1990 and particularly up until the Great Recession. This implies the need to reduce the prominence of finance, i.e. so-called de-financialisation, in the coming years in order to avoid the potential new 'secular stagnation' in the current age of financialisation.

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“…Considering that financial development is largely argued to positively influence economic growth (see Azman-Saini, Law & Ahmad, 2010;Beck, Georgiadis & Straub, 2014;Breitenlechner, Gächter & Sindermann, 2015;Ibrahim & Alagidede, 2018), the last couple of decades have seen an enormous financial liberalization in developing countries. This is highly driven by the quest to pump international financial know-how into the financial market so as to bridge the gap between them and the developed economies (Bahadir & Valev, 2015).…”

Section: Introductionmentioning

confidence: 99%

Financial sector development convergence in Africa: Evidence from bank- and market-based measures

2019

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In this paper, we employ data from 46 African countries over the period 1980–2014 to examine financial sector development convergence, using bank- and market-based measures of financial development. Within the framework of the generalized method of moments (GMM), we present evidence that both the bank– and market–based financial sector development in Africa diverge over time. However, we find strong evidence of financial development divergence when using bank-based financial sector development indicators whereas this evidence is weaker for market-based indicators. Given the divergence in the level of finance, the gap between countries with underdeveloped and well–developed financial markets will continue to widen as financially less developed countries do not appear to catch-up with the financially more developed economies. Keywords: Financial development; divergence, convergence, AfricaJEL Classification: F15, F36, G01, O55

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The finance–growth nexus in crisis

Cited by 57 publications

References 12 publications

Examining the relationship between finance, institutions and economic growth: evidence from the ASEAN economies

Examining the relationship between finance, institutions and economic growth: evidence from the ASEAN economies

Finance-growth nexus in the age of financialisation: An empirical reassessment for the European Union countries

Financial sector development convergence in Africa: Evidence from bank- and market-based measures

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