Finance and growth: Evidence from the ARF countries

Pradhan, Rudra P.; Arvin, Mak B.; Bahmani, Sahar; Hall, John H.; Norman, Neville R.

doi:10.1016/j.qref.2017.01.011

Cited by 75 publications

(64 citation statements)

References 123 publications

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“…Jung (1986) found that underdeveloped countries are characterized by the causal direction running from the financial development to the economic growth; however, developed countries are characterized by the reverse causality direction. Similarly, Abu-Bader and Abu-Qarn (2008), Adu, Marbuah, and Mensah (2013), Agbetsiafa (2004), Bojanic (2012), Christopoulos and Tsionas (2004), Enisan and Olufisayo (2009), Ghali (1999), Hsueh, Hu, and Tu (2013), Khadraoui and Smida (2012), Masih, Al-Elg, and Madani (2009), Menyah, Nazlioglu, and Wolde-Rufael (2014), Pradhan, Arvin, Bahmani, Hall, and Norman (2017), and Pradhan, Dasgupta, and Bele (2013) also found some evidence for the supply-leading hypothesis.…”

Section: Review Of the Relationship Between Financial Development Andmentioning

confidence: 93%

Finance–Growth Nexus in Nepal: An Application of the ARDL Approach in the Presence of Structural Breaks

Bist

Bista

2018

Vikalpa: The Journal for Decision Makers

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Executive Summary A healthy financial system is important for the growth process of an economy. It affects growth by influencing the saving, investment and technological innovations. In fact, researchers argue that low-income countries like Nepal need a much more robust and active financial system when compared to the developed world. Therefore, this study examines the relationship between financial development and economic growth using annual time series data for Nepal during the period 1984–2014. Because Nepal has a bank-based economy, the study used credit issued by banking and financial institutions to the private sector as the proxy for financial development. The economic growth has been measured using real gross domestic product (GDP) growth and real GDP per capita growth (constant 2005 US$). The autoregressive distributed lag (ARDL) bounds testing approach is used to investigate the cointegration among variables in the presence of structural breaks. The study used Zivot and Andrews’ (ZA) unit root test in order to find the structural breaks in the variables. The study finds that the structural change in private credit took place in 2007 when the government of Nepal and Maoists (the then rebels) signed a Comprehensive Peace Agreement and the Maoist rebels joined the interim government, which formally ended the 10 years long civil war in Nepal. Similarly, the study observes break points in real GDP growth and per capita growth in 2001 when the Royal Massacre and a state of emergency took place in Nepal. After allowing for structural breaks, the study finds evidence of a cointegration relationship between financial development and economic growth when economic growth is used as the dependent variable. Thus, it can be argued that the long-run causality is unidirectional from financial development to economic growth in Nepal. The estimates of the ARDL approach suggest that financial development has a significant positive impact on economic growth in both long run and short run. However, the estimates show that gross domestic saving, a control variable, has a negative impact on economic growth in Nepal. It clearly indicates that Nepal has long not been able to utilize the savings in the productive sector. The political instability, poor investment policies and securities and hence the lack of foreign investment and lack of technological innovations could be the causes for Nepal not benefiting from the country’s savings. It is also found that trade openness has a negative relationship with economic growth in the long run: possibly the cause of the persistent trade deficit of Nepal with the rest of the world. However, in the short run, the result shows a positive relationship between trade openness and growth. In fact, it is found that the magnitude of the positive impact of trade openness in the short run is higher than the magnitude of its negative impact in the long run. Thus, the policymakers should give more emphasis on trade and investment policies that could reduce the prolonged trade deficit and help the nation in getting long-term benefits from international trade.

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Section: Review Of the Relationship Between Financial Development Andmentioning

confidence: 93%

Finance–Growth Nexus in Nepal: An Application of the ARDL Approach in the Presence of Structural Breaks

Bist

Bista

2018

Vikalpa: The Journal for Decision Makers

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“…In the development literature, the financial system is the nerve center of a country's development. Hence, an efficient provision of financial services determines the economic growth and prosperity of a country (see, for instance, Pradhan et al, 2017aPradhan et al, , 2017b. Financial development can contribute to economic growth in the following ways:…”

Section: Theoretical Frameworkmentioning

confidence: 99%

The dynamics of bond market development, stock market development and economic growth

Pradhan

Arvin

Norman

et al. 2019

JEFAS

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Purpose The paper investigates whether Granger causal relationships exist between bond market development, stock market development, economic growth and two other macroeconomic variables, namely, inflation rate and real interest rate. The study aims to expand the domain of economic growth by including a more in-depth analysis of the possible impact that bond market and stock market development has on economic growth than is normally found in the literature. Design/methodology/approach This paper uses a panel data set of the G-20 countries for the period 1991-2016. It uses a panel vector auto-regression model to reveal the nature of any Granger causality among the five variables. Findings The paper provides empirical insights that both bond market development and stock market development are cointegrated with economic growth, inflation rate and real interest rate. The most robust result from the panel Granger causality test is that bond market development, stock market development, inflation rate and real interest rate are demonstrable drivers of economic growth in the long run. Research limitations/implications Because of the chosen research approach, the research results may lack theoretical foundations. Therefore, perhaps the more fully grounded interactive findings of this study can inspire theorists to fill the missing gap. Practical implications This paper includes lessons for policymakers in the G-20 countries seeking to stimulate economic growth in the long run and how they need to ensure greater stability of the interest rate and inflation rate as well as fully developing their financial markets, as both bond markets and stock markets are obvious drivers of economic growth. Originality/value This paper fulfills an identified need to study causal relationships between bond market development, stock market development, economic growth and two other macroeconomic variables, i.e. inflation rate and real interest rate.

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“…However, in order to measure financial development, studies have also used stock market development, bond market development and insurance sector development as the indicators of financial sector development. Thus, the selection of variables is related to the country's financial system, depending on whether the country features a financial system oriented on banks or on the capital market (Pradhan et al, 2017). Since our study is based on BRICS countries and this group consists both the developed and developing economies, the present study includes all four areas of finance into account.…”

Section: The Descriptive Statistics Inmentioning

confidence: 99%

Financial development, openness in financial services trade and economic growth

Khatun

Bist

2019

ITPD

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Purpose The purpose of this paper is to examine the relationship between financial development, openness in financial services trade and economic growth in BRICS countries for the period 1990–2012. Design/methodology/approach An index for financial development has been constructed using principal component analysis technique by including banking sector development, stock market development, bond market development and insurance sector development. For the robustness of the result, the long-run cointegrating relationship amongst the variables has been analyzed. Findings Overall financial development has a positive and significant impact on economic growth. To take the full advantage of openness in financial services trade, countries need to put more emphasis on the development of their stock markets, bond markets and the insurance sector. The result shows that openness in financial services trade has a positive impact on economic growth when the stock market, bond market and insurance sector are included in the system. Research limitations/implications The policy implication of the findings is that policymakers should focus more on developing all four areas of finance to get the full benefit of the financial system on the process of economic growth. Originality/value The authors have constructed the better indicators of financial development in the case of BRICS economies. Most of the studies in BRICS economies have measured the development of the financial sector as either banking sector development or stock market development. However, the present study includes all four areas of finance (banking sector development, stock market development, insurance sector development and bond market development) into account.

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Finance and growth: Evidence from the ARF countries

Cited by 75 publications

References 123 publications

Finance–Growth Nexus in Nepal: An Application of the ARDL Approach in the Presence of Structural Breaks

Finance–Growth Nexus in Nepal: An Application of the ARDL Approach in the Presence of Structural Breaks

The dynamics of bond market development, stock market development and economic growth

Financial development, openness in financial services trade and economic growth

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