relationship between financial development and economic growth pdf

Relationship Between Financial Development And Economic Growth Pdf

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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 to using banking sector and stock market development indicators. 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.

Financial Sector Development and Economic Growth: Revisiting the Relationship

To browse Academia. Skip to main content. By using our site, you agree to our collection of information through the use of cookies. To learn more, view our Privacy Policy. Log In Sign Up. Download Free PDF. Eliud Moyi. Rogers Musamali. Download PDF. A short summary of this paper. Box , , Nairobi, Kenya. Tel: E-mail: rmusamali gmail. It presents evidence on a cross section of 50 African countries whose data is available for the period Two proxies of financial development are employed: the ratio of credit to the private sector to total GDP and the ratio of broad money M2 to total GDP.

We establish a positive relationship between financial development and economic growth. However, we find that the relationship between private sector credit and economic growth is much stronger than the relationship between money supply and economic growth. In addition, we find that the relationship between financial sector development and economic growth is bi-directional. Background Literature proposes that financial development through growth of private sector credit leads to improved economic growth see section 3.

However, an assessment of the historical picture does not seem to suggest that this is indeed the case in Africa. This led to financial reforms that were part of structural adjustment programs, which were supported by international financial institutions. Interest rates were liberalized, credit controls removed, and indirect monetary policy instruments introduced.

While early results were mixed, a new round of reforms was implemented in the mid s. This led to an increase in financial intermediation and credit growth in most of the African countries. Section 2. GDP grew at However, private sector credit PVC grew at 3. Although there is high credit growth witnessed during the period of study, economic growth is weak.

Overall, data presented in figure 1 suggests that the growth of PVC, for instance, does not seem to be correlated with the growth of GDP and vice versa. Various attempts have been made in the literature to unveil the link between economic growth and financial development. Some studies support the link between the two. These include Gurley and Shaw , Shaw and Beck et al Other studies oppose the view that a link exists between financial development and economic growth.

These include Ram and Favara In view of the controversy in the literature regarding the role of financial development on growth, this study seeks to contribute to the debate by investigating the relationship between financial development and economic growth in Africa.

On average, GDP grew by The average growth rate for the period stood at 2. Private sector credit PVC grew at 3. The average growth rate for the period stood at 1. From to , there was a reversal in PVC growth from negative to positive. This could be attributed to financial liberalization measures that were being implemented in most of the countries. These measures were aimed at easing inflation, lowering the cost of financial intermediation and insulating credit markets from government interference.

We note that PVC declines considerably in the year This could be attributed to the global financial crisis which adversely affected foreign capital inflows mainly from Europe and USA.

PVC, M2 and economic growth in Africa Growth in M2 records a high of 10 percent in and a low of -4 percent in The average growth rate of M2 during the period is 2. On average, the growth rate of M2 for the period stood at 1. Growth of private sector credit and GDP www. This result suggests that countries with high credit to the private sector tend to register higher growth performance. This is the first indication that financial development could be associated with economic growth.

Country-level analysis suggests that growth of private sector credit is more strongly correlated with economic growth in South Africa, Botswana, Egypt, Kenya, Mauritius whereas there are weak correlations in Congo Democratic Republic, Uganda, Angola, and Guinea among other African countries. Growth of Broad Money supply and GDP From figure 3, it appears that there is generally a weak negative relationship between the ratio of money supply M2 and economic growth.

This negative relationship could imply that most African countries have not harnessed the full potential of their financial sectors hence they remain undeveloped. In addition lack of sound monetary policies in these countries especially those that counter inflationary tendencies could be an indicator towards this weak negative relationship.

Literature Review 3. John Hicks observed that it played an important industrialization role in England. The relationship between financial development and economic growth dates back to Schumpeter who underlined the central role of financial services in innovation and development.

Financial institutions spur innovation and growth through identifying and funding productive investments. Generally, there is consensus that the financial sector stimulates economic development www. The financial sector plays a big role in deposits transfer to financial assets and channeling funds from surplus to deficit units. It therefore facilitates the creation of wealth, trade and the formation of capital Ahmed There are two dominant views on the nexus between financial development and economic growth.

On one hand, the supply-leading view, postulates that financial development has a positive effect on economic growth Schumpeter, ; King and Levine, ; and Calderon and Liu, According to this view, the causal effect runs from financial development to economic growth.

This effect is caused by an improvement in the efficiency of capital accumulation, an increase in the rate of savings or an increase in the rate of investment. On the other hand, the demand-following view postulates that financial development responds to changes in the real sector Jung, ; and Ireland, Economic growth causes financial development according to this view.

An increase in real economic growth causes a rise in the demand for financial services which results in the financial sector expansion. This means that financial development responds to economic growth. Two other views exist that lie between the supply-leading and the demand-leading hypotheses Apergis et al, The first one postulates that the relationship between the two is of mutual impact. This means that the relationship between financial development and economic growth is bi-directional.

The second view postulates that there is no relationship between financial development and economic growth. It is always assumed that the supply leading view dominates the demand-leading view which means financial development causes economic growth.

Patrick introduces the stage of development view in this discussion by postulating that the causal relationship between financial development and economic growth depends on the stage of economic development. In the early stages of economic development, supply leading hypothesis dominates.

This means financial sector development stimulates real capital formation vital for investment. The development of new financial services creates new opportunities for savers and investors which causes an increase in economic growth.

With more financial and economic development, the supply-leading view becomes less and less dominant. It is soon gradually taken over by the demand-leading hypothesis which starts to dominate in the latter stages of financial and economic development. Choe and Moosa examine the relationship between financial development www. Causality tests show that financial development leads to economic growth. Ghali established a stable long-run relationship between financial development and economic growth in Tunisia.

Causality runs from financial development to economic growth. In Botswana, Eita finds a stable long run relationship between financial development and economic growth implying that financial development causes economic growth.

In addition, causality runs from financial development to economic growth as postulated by the supply leading view. Cross country evidence on the direction of causality between financial development and economic growth is mixed.

Jung tested causality between financial development and economic growth for 56 countries 19 developed and 37 developing. The results showed that developing countries have a supply-leading causality pattern more frequently than the demand leading pattern.

Developed countries have a demand leading causality. Habibullah and Eng tested causality on 13 Asian developing countries. They found that credit growth promotes economic growth, thus supporting the Schumpeterian hypothesis. Wadud established a stable relationship between financial development and economic growth for South Asian countries-India, Pakistan and Bangladesh.

Granger causality tests establish a unidirectional causality that runs from financial development to economic growth. Some studies postulate that economic growth drives credit growth. Robinson argues that economic activity propels banks to finance enterprises. Other empirical studies support the demand-leading view between financial development and economic growth. Lucas believed that economists overemphasize the role of financial factors in economic growth.

In essence, banks only respond passively to industrialization and economic growth.

Financial development and Economic Growth: The Case of Cape Verde

April 12, by Maya Gainer. She plans to pursue a career in the private sector in New York. Economists have long debated whether a more developed financial sector helps drive economic growth. To some, the global financial crisis suggested thatan abundance of financial intermediaries and insufficient regulations can lead to economic collapse. However, during the same time period, increased access to financial institutions in developing countries has had a profound impact on their growth—even though the majority of these transactions have occurred through non-traditional means like mobile phones.

The Relationship between Financial Development and Economic Growth in Africa

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 to using banking sector and stock market development indicators. 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.

Citation: Md Qamruzzaman, Wei Jianguo. Investigation of the asymmetric relationship between financial innovation, banking sector development, and economic growth[J]. Quantitative Finance and Economics, , 2 4 : Article views PDF downloads Cited by Tables

Explaining the Links

To browse Academia. Skip to main content. By using our site, you agree to our collection of information through the use of cookies. To learn more, view our Privacy Policy. Log In Sign Up. Download Free PDF.

 - Вам незачем знать, что вы переводите. Беккер засмеялся. И увидел, что никто даже не улыбнулся, когда текст был наконец расшифрован. Беккер так и не узнал, какие страшные секреты он помог раскрыть, ни одна вещь не вызывала у него никаких сомнений. АНБ очень серьезно относилось к дешифровке.

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 - Мне необходимо решение. Или мы начинаем отключение, или же мы никогда этого не сделаем. Как только эти два агрессора увидят, что Бастион пал, они издадут боевой клич.

Не упусти. - Спасибо, шеф. Голос шефа из смешливого вдруг стал жестким: - Сьюзан, я звоню потому, что ты нужна мне .

 - Пойду я! - Ее тон говорил о том, что возражений она не потерпит. Стратмор закрыл лицо руками. - Хорошо. Это на нижнем этаже.

Financial development and economic growth: panel evidence from BRICS

Шум и мелькающие огни в шифровалке делали ее похожей на стартовую площадку ракеты. Хейл зашевелился и в ответ на каждое завывание сирены начал моргать. Неожиданно для самой себя Сьюзан схватила беретту, и Хейл, открыв глаза, увидел ее, стоящую с револьвером в руке, нацеленным ему в низ живота. - Где ключ? - потребовала .

 - Неверный ключ. Все застыли в ужасе. На экране перед ними высветилось сообщение об ошибке: НЕДОПУСТИМЫЙ ВВОД. ТОЛЬКО В ЦИФРОВОЙ ФОРМЕ - Черт его дери! - взорвался Джабба.  - Только цифровой.

Сверху слышался гулкий звук шагов, спешащих вниз по лестнице. Беккер закрыл глаза, стиснул зубы и подтянулся. Камень рвал кожу на запястьях.

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2 comments

Brice R.

Dept. of Economics, Trinity College, Connecticut, USA. This paper investigated the long run relationship between financial development and economic growth in​.

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Monika A.

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