The role of financial development in economic growth

Bloch, Harry; Tang, Sam Hak Kan

doi:10.1191/1464993403ps063pr

Cited by 40 publications

(17 citation statements)

References 18 publications

(17 reference statements)

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“…These studies provide evidence in support of the notion that financial development and economic growth are not related and they are two different phenomena that are independent of one another. Such studies include Bloch and Tang (2003), Levine and Zervos (1996), Ram (1999), Andersen & Trap (2003). Furthermore, some empirical studies such as Yıldırım et al (2013), Hakeem and Oluitan (2013), Islam et al (2004), Kar and Pentecost (2000) showed evidence that there exist a unidirectional causality from economic growth to financial development in some countries.…”

Section: Literature Reviewmentioning

confidence: 99%

Financial sector development and economic growth: evidence from Cameroon

Puatwoe¹,

Piabuo²

2017

Financ Innov

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For decades, African economies have embarked on financial sector reforms. However, the empirical implications of these reforms have been divergent. This paper investigates the impact of financial development on Economic growth using time series data in Cameroon. This investigation was carried out using three common indicators of financial development (broad money, deposit/GDP and domestic credit to private sector). Using the Auto Regressive Distributive Lag (ARDL) technique of estimation, it was discovered that there exist a short-run positive relationship between monetary mass (M2), government expenditure and economic growth, a short run negative relationship between bank deposits, private investment and economic growth equally exists. However in the long run, all indicators of financial development show a positive and significant impact on economic growth. This paper thus confirms the existence of a positive and long-term impact of all the indicators of financial development on economic growth through bound test. It is therefore proposed that the financial reforms in Cameroon should be pushed forward in order to boost the development of the financial sector thus an increase in its role on economic growth.

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Section: Literature Reviewmentioning

confidence: 99%

Financial sector development and economic growth: evidence from Cameroon

Puatwoe¹,

Piabuo²

2017

Financ Innov

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“…Although there now exists a large literature on the role of financial development in economic growth (Levine, 1997), the debate concerning the role played by the development of financial intermediaries in economic growth is contestable. The debate concerns the possible causality running from financial development to economic growth as well as the channels through which financial development affects growth (Bloch and Tang, 2003). Levine (1997), although warning about the causal relationship between financial development and economic growth, 3 strongly argues in favour of the positive role of financial development.…”

Section: Conceptual Frameworkmentioning

confidence: 99%

Corporate Transparency, Financial Development and the Allocation of Capital: Empirical Evidence

Habib

2008

Abacus

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There is controversy regarding the role of financial development in promoting economic growth. Lucas (1988) suggests that the role of financial intermediation in economic growth has been very badly over-stressed in the popular and professional discussion. Levine et al . (2000), on the other hand, show that in a cross-country setting the exogenous component of financial intermediary development is positively and robustly linked to economic growth. Although empirical methodologies to investigate the finance-growth nexus have been refined, there is a lack of understanding about the exact mechanisms through which the financial system could affect economic performance in the real sector. Wurgler (2000) investigates one such mechanism of economic growth: whether capital is allocated efficiently. He then empirically shows that countries with well-developed financial architecture improve capital allocation. This article extends Wurgler (2000) by investigating the role of an important economic institution, the financial reporting system, on the efficiency of capital allocation. Financial reporting provides the primary source of independently verified information to the capital providers about the performance of managers and facilitates efficient resource allocation decisions. Results show that financial transparency is positively and significantly related to capital allocation efficiency. Further, this result holds after controlling for the impact of stock price synchronicity, stateowned enterprises and investor protection rights.A fundamental factor in wealth creation in an economy is the efficiency with which scarce capital is allocated to profitable investment opportunities. This requires firms' managers to allocate capital to positive net present value (NPV) projects, avoid projects that generate negative NPVs, and withdraw capital from projects found to be losers at some point after project initiation when such expected losses are confirmed.Economic theories posit that formal financial markets and associated institutions improve the capital allocation process. Diamond (1984) develops a theory of A shan H abib (ahsan.habib@aut.ac.nz) is a Senior Lecturer in the Department of Accounting, Auckland University of Technology. I appreciate the helpful comments from three anonymous reviewers and the editor, Graeme Dean.

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“…(2016). There are also a considerable number of studies in the literature that cannot observe the relationship between bank credits and economic growth: Odedokun (1998), Wa (2002), Aziz and Duenwald (2002), Bloch and Tang (2003) Demetriades and Andrianova (2003), Chen (2006) Shan and Jianhong (2006), Loayza and Ranciere (2006), Estrada et al (2010), Onder and Ozyıldırım (2010), Kumar (2011), Demetriades and James (2011), and Lu and Shen (2012).…”

Section: Literaturementioning

confidence: 99%

“…Some other past studies Gurley and Shaw (1955) and Adve (1980), favored positive effect of bank credits on industrial growth. In other respect, Ajayi (2000), Wa (2002), Bloch and Tang (2003) argued that the inexpressive positive and negative relation between bank loans and the growth of the sector was widespread in time.…”

Section: Literaturementioning

confidence: 99%

A Micro Based Study on Bank Credit and Economic Growth: Manufacturing Sub-Sectors Analysis

Hacıevliyagil

Ekşi̇

2019

South East European Journal of Economics and Business

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The manufacturing sector plays an important role in the development of modern economy all over the world. Manufacturing -as a sub -sector of the industry-refers to the production of raw materials and other factors of production, such as labor, land and capital, or goods and services through the production process. With the multiplier effect, the share of the manufacturing industry sectors in the world value added is around 20%. Similarly, the sector also covers about 1 in 9 of the total employment in the world (UNIDO, 2017). As to put it, the share of the sector in GDP is also very high and crucial. For example, in Turkey, the average manufacturing industry share in total GDP is 40% but it varies yearly. While the shares of agriculture and service sectors in GDP were declining in years recently, the share of the industrial sector was increasing (BAT, 2017).To fully realize the importance of the industry in evaluating the above figures, the interaction between the other sectors of the industrial sector and other economic activities on the economy scale has been examined for many years. In the 1920s, British economist Allyn Young suggested that network-type connections between sectors of this type were the Nuri Hacievliyagil, Ibrahim Halil Eksi AbstractThis study examines the relationship between bank credits and performance and growth of manufacturing sub-sectors. Industrial Production Index was used for a different approach as a dependent variable. Indications of the autoregressive distributed lag (ARDL) bound co-integration test support the theory that bank credits are more effective than loan rates on industrial production of sub-sectors. Moreover, the increase in bank credit leads to the rise of industrial production in all the sub-sectors, except Machinery. According to the Toda Yomamato causality test results, there are different degrees of causalities in means of the importance of bank loans for industrial production. On the other hand, in all sub-sectors except machinery and chemical sub-sectors, causality relations were observed at different grades beginning from loan interest rates to industrial production. As a result, this study concludes with the evidence of supply leading hypothesis via the financial sector leads and causes economic growth.

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The role of financial development in economic growth

Cited by 40 publications

References 18 publications

Financial sector development and economic growth: evidence from Cameroon

Financial sector development and economic growth: evidence from Cameroon

Corporate Transparency, Financial Development and the Allocation of Capital: Empirical Evidence

A Micro Based Study on Bank Credit and Economic Growth: Manufacturing Sub-Sectors Analysis

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