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Book part
Publication date: 15 August 2007

Ritab S. Al-Khouri

This paper presents new evidence of the relationship between financial market development (banking sector) and economic growth for a set of seven Middle East and North…

Abstract

This paper presents new evidence of the relationship between financial market development (banking sector) and economic growth for a set of seven Middle East and North African economies over the period 1965–2002. We find evidence that in six of the seven countries, banking-sector development Granger causes increases in economic growth. However, in three of those six countries, economic growth also Granger causes banking development. Our co-integration analysis reveals that there is a stable long-run equilibrium relationship between banking-sector development and economic growth for all our countries. However, based on vector error-correction models, there is limited evidence that banking-sector development boosts economic growth in the short run.

Details

Issues in Corporate Governance and Finance
Type: Book
ISBN: 978-1-84950-461-4

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Article
Publication date: 30 August 2011

Qazi Muhammad Adnan Hye and Irina Dolgopolova

The purpose of this paper is to construct a financial development index for China and to analyze the relationship between the financial sector development index and

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1311

Abstract

Purpose

The purpose of this paper is to construct a financial development index for China and to analyze the relationship between the financial sector development index and economic growth.

Design/methodology/approach

This study uses Johansen‐Juselius cointegration approach to determine long run relationship between variables. To determine the strength of causal relationship variance decomposition is used. The stability of coefficient is evaluated through rolling window regression method.

Findings

The results of Johansen‐Juselius cointegration approach confirm long run relationship between financial development index and economic growth. Normalized cointegrating vector indicates that financial development index, real interest rate, capital and labor force positively determine economic growth in China. The yearly coefficient is provided by the rolling regression and indicates that financial development index negatively link to economic growth in 1991, 1992, 1994, 1995, 1999, 2000, 2003‐2005. Interest rate is negatively linked to economic growth in 1991‐1996, 2007 and 2008. The variance decomposition method validates that shocks in financial development index and real interest rate are explained by economic growth.

Originality/value

A financial development index for China is constructed and the relationship between economic growth and financial development is indicated.

Details

Chinese Management Studies, vol. 5 no. 3
Type: Research Article
ISSN: 1750-614X

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Article
Publication date: 7 September 2020

Yusniliyana Yusof and Kaliappa Kalirajan

The study contributes to the aim of regional development policy in reducing regional disparities, by examining the spatial balance in socioeconomic development across the…

Abstract

Purpose

The study contributes to the aim of regional development policy in reducing regional disparities, by examining the spatial balance in socioeconomic development across the states of Malaysia based on composite development index (CDI). Besides, the study has attempted to understand the issues in the development gaps across Malaysian states by evaluating the factors that explain the variation in economic growth

Design/methodology/approach

This study uses three-stage least squares (3SLS) and bootstrap sampling and estimation techniques to examine the factors that explain the variations in the growth of development across the states in Malaysia. The analysis involves 13 states in Malaysia (Johor, Melaka, Negeri Sembilan, Pulau Pinang, Perak, Perlis, Selangor, Kedah, Kelantan, Pahang, Terengganu, Sabah and Sarawak) from 2005 to 2015.

Findings

The pattern in the spatial socioeconomic imbalance demonstrates a decreasing trend. However, the development index reveals that the performance of less developed states remained behind that of the developed states. The significant factors in explaining the variation in growth across the Malaysian states are relating to agriculture, manufacturing, human capital, population growth, Chinese ethnicity, institutional factors and natural resources.

Research limitations/implications

The authors focused on Malaysian states over the period between 2005 and 2015. The authors encountered some limitations in obtaining relevant data such as international factors and technological change that might also explain the variation in economic growth as the data on these variables are not reported at the state level. Moreover, the data on GSDP by sector was only available from the year 2005. Second, the study is based on secondary data. Future studies might examine the factors that contribute to the development gap across Malaysian states through interviews or questionnaires and compare the findings with the existing results. Despite its limitations, this study contributes to the existing literature that emphasizes on spatial balance of socioeconomic in a developing country, focusing on Malaysian states.

Practical implications

These findings provide guidance for policymakers by understanding key potential areas to reduce the disparity in economic growth across Malaysian states by understanding their impact on the growth.

Originality/value

This study employs different method of 3SLS and bootstrap sampling and estimation techniques in examining the factors that explain the variations in the growth of development across the states in Malaysia.

Details

Journal of Economic Studies, vol. 48 no. 3
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 9 November 2015

Pramod Kumar Naik and Puja Padhi

The purpose of this study is to empirically examine the impact of stock market development on the economic growth for a panel of 27 emerging economies using annual data…

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12743

Abstract

Purpose

The purpose of this study is to empirically examine the impact of stock market development on the economic growth for a panel of 27 emerging economies using annual data over the period from 1995 to 2012.

Design/methodology/approach

A second-generation panel unit root test developed by Pesaran (2007) has been used to test the stationary properties of the data series. To achieve the study objectives and to mitigate the endogeneity problem that exists in the given model, the authors use a dynamic panel “system GMM” estimator. The authors also use a heterogeneous panel causality test proposed by Dumitrescu and Hurlin (2012) to examine the direction of causality among the variables.

Findings

The empirical findings indicate that stock market development significantly contributes to economic growth. Further, a unidirectional causality running from stock market development to economic growth has been found. This finding is consistent with the supply-leading hypothesis. Besides stock market development, it is also evident that macroeconomic variables, such as investment ratio, trade openness and exchange rates, have significant impact on economic growth.

Research limitations/implications

The findings suggest that a well-functioning stock market, a more globalized economy and increasing aggregate investment can potentially foster the economic growth in those emerging economies.

Originality/value

Unlike other studies, this study constructs three alternate composite indices along with the individual indicators of stock market development and applies robust panel econometric techniques to establish more reliable results.

Details

Review of Accounting and Finance, vol. 14 no. 4
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 19 June 2019

Isaac Boadi, Daniel Osarfo and Perpetual Boadi

The purpose of this paper is to investigate the relative impact of bank-based and market-based financial developments on economic growth from 1984 to 2015, using 60countries.

Abstract

Purpose

The purpose of this paper is to investigate the relative impact of bank-based and market-based financial developments on economic growth from 1984 to 2015, using 60countries.

Design/methodology/approach

This study uses fixed effect and generalized method of moments (GMM) to investigate the relative impact of bank-based and market-based financial developments on economic growth from 1984 to 2015, using 60 countries. The study further controls regional effects and the Asian crisis, as well as the global economic crisis.

Findings

The empirical results of the study revealed that market-based development positively affects economic growth. Besides, market-based financial development indirectly promotes investment, which has the potential to strongly enhance growth. The findings of this study, therefore, provide more support to pro-market-based financial development policies in these regions. Interestingly, bank-based development has no direct impact on development, but indirectly encourages investment, which also promotes growth.

Originality/value

This paper is the first of its kind to empirically examine fixed effect and GMM to investigate the relative impact of bank-based and market-based financial developments on economic growth from 1984 to 2015, using 60 countries.

Details

Studies in Economics and Finance, vol. 36 no. 3
Type: Research Article
ISSN: 1086-7376

Keywords

Content available
Article
Publication date: 20 February 2019

Biplab Kumar Guru and Inder Sekhar Yadav

The purpose of this paper is to examine the relationship between financial development and economic growth for five major emerging economies: Brazil, Russia, India, China…

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14591

Abstract

Purpose

The purpose of this paper is to examine the relationship between financial development and economic growth for five major emerging economies: Brazil, Russia, India, China and South (BRICS) during 1993 to 2014 using banking sector and stock market development indicators.

Design/methodology/approach

To begin with, the study first examined some of the principal indicators of financial development and macroeconomic variables of the selected economies. Next, using generalized method of moment system estimation (SYS-GMM), the relationship between financial development and growth is investigated. The banking sector development indicators used in the study include size of the financial intermediaries, credit to deposit ratio (CDR) and domestic credit to private sector (CPS), whereas the stock market development indicators are value of shares traded and turnover ratio. Also, some macroeconomic control variables such as inflation, exports and the enrolment in secondary education were used.

Findings

The examination of the principal indicators of financial development and macroeconomic variables have shown considerable differences between the selected economies. Results from the dynamic one-step SYS-GMM estimates confirm that in presence of turnover ratio, all the selected banking development indicators such as size of financial intermediaries, CDR and CPS are positively significantly determining economic growth. Similarly, in presence of all the selected banking sector development indicators, value of shares traded is found to be positively significantly associated with economic growth. However, the same is not true when turnover ratio is regressed in presence of banking sector variables. Overall, the evidence suggests that banking sector development and stock market development indicators are complementary to each other in stimulating economic growth.

Practical implications

A positive association between financial development and growth indicates that the policymakers should take necessary measures toward simultaneous development of both banking sector as well as stock market for inducing growth.

Originality/value

The present paper attempts to examine the relationship between financial development and growth using both banking sector and stock market development indicators which has not been attempted before for BRICS. Also, most of the existing studies are found in case of developed economies. This paper tries to fill this void by studying five major emerging economies.

Details

Journal of Economics, Finance and Administrative Science, vol. 24 no. 47
Type: Research Article
ISSN: 2077-1886

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Article
Publication date: 14 October 2019

Rudra Pradhan, Mak B. Arvin, Sahar Bahmani and John H. Hall

The purpose of this paper is to consider the heterogeneous relationship among financial development, foreign direct investment (FDI) and economic growth, examining the…

Abstract

Purpose

The purpose of this paper is to consider the heterogeneous relationship among financial development, foreign direct investment (FDI) and economic growth, examining the possible directions of causality among them in both the short and long runs.

Design/methodology/approach

A sample of the G-20 countries over the period 1970–2016 is utilized. A vector error-correction model is used to consider the possible directions of causality among financial development, FDI and economic growth.

Findings

Results suggest a cointegrating relationship among the three series. Although short-run links among the variables are mostly non-uniform, both financial development and FDI matter in the determination of long-run economic growth.

Practical implications

Attention must be paid to policies that promote financial development. This, in turn, calls for fostering incentives to guarantee continued support to liberalize the economy and promoting capital openness. Additionally, financial infrastructure should be improved to improve financial innovation. The establishment of a well-developed financial market, including well-functioning banks and other financial institutions, can facilitate further investment and an easier means of raising capital to support the activities of FDI. Economic growth can ultimately be elevated through both financial development and FDI.

Originality/value

The study considers a sample of the G-20 countries, which have received relatively little attention in the existing literature. In addition, the study concurrently analyses the trivariate causal relationship among financial development, FDI and economic growth, a topic on which there has been a dearth of research.

Details

Journal of Economic Studies, vol. 46 no. 6
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 4 April 2017

Magda Kandil, Muhammad Shahbaz, Mantu Kumar Mahalik and Duc Khuong Nguyen

Using annual data from 1970 to 2013 for China and India, this paper aims to examine the impact of globalization and financial development on economic growth by…

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4377

Abstract

Purpose

Using annual data from 1970 to 2013 for China and India, this paper aims to examine the impact of globalization and financial development on economic growth by endogenizing capital and inflation and drawing comparisons between the two fastest growing emerging market economies.

Design/methodology/approach

In the long run, co-integration test results indicate that financial development increases economic growth in China and India.

Findings

The results also reveal that globalization accelerates economic growth in India but, surprisingly, impairs economic growth in China, as it increases competition for exports. The results furthermore disclose that acceleration in capitalization and inflation, as a proxy for aggregate demand, are positively linked to economic growth in China and India.

Originality/value

Causality test results indicate that both financial development and economic growth are interdependent. In contrast, causality runs from higher economic growth to increased globalization in India, while the results do not support long-term causality between globalization and economic growth in China.

Details

International Journal of Development Issues, vol. 16 no. 1
Type: Research Article
ISSN: 1446-8956

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Article
Publication date: 3 June 2014

Rihab Grassa and Kaouthar Gazdar

The purpose of this paper is to compare the effects of Islamic financial development and conventional financial development on the economic growth for five GCC countries…

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6715

Abstract

Purpose

The purpose of this paper is to compare the effects of Islamic financial development and conventional financial development on the economic growth for five GCC countries (Bahrain, Kuwait, Qatar Saudi Arabia and UAE).

Design/methodology/approach

Using generalized least squares, OLS and panel data frameworks, this paper employs different measures of financial development for the period (1996-2011).

Findings

Empirical results strongly support the hypothesis that Islamic finance leads to growth in the five GCC countries, however, no significant relationship observed between conventional financial development and growth.

Practical implications

The findings of this paper suggest the need to accelerate the financial reforms for Islamic finance that have been launched in the region since the last decade and to improve the efficiency of these countries’ Islamic financial systems to stimulate saving/investment and, consequently, long-term economic growth.

Originality/value

This study has several contributions to the existing literature. To the best of the authors’ knowledge, this paper is the first study that examines empirically the effect of Islamic finance on economic growth in GCC countries. As well, this paper is the first to compare the different effects of Islamic finance and conventional finance on economic growth on a context of countries having the most developed Islamic financial system in the world operating side-by-side with a conventional financial system.

Details

International Journal of Social Economics, vol. 41 no. 6
Type: Research Article
ISSN: 0306-8293

Keywords

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Article
Publication date: 1 January 1992

Lewis D. Solomon

I. Introduction For over forty years, a model for Third World development has gained widespread acceptance. Three key premises underpin the traditional development model…

Abstract

I. Introduction For over forty years, a model for Third World development has gained widespread acceptance. Three key premises underpin the traditional development model: (1) the identification of “development” with the maximization of the rate of national economic growth; (2) the quest to achieve Western living standards and levels of industrialization which require the transfer of labor from the agricultural to the industrial sector as well as increased consumerism; and (3) the integration into the interdependence of Third World nations in the global economy and the global marketplace. Increasing the demand for a Third World nation's exports (in other words, export‐led growth) is viewed as leading to the maximization of a nation's Gross National Product (GNP).

Details

Humanomics, vol. 8 no. 1
Type: Research Article
ISSN: 0828-8666

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