Financial Intermediation Development and Economic Growth Nexus in Sri Lanka

Silva, M. C. Dilhan De

doi:10.4038/ss.v46i1-2.4700

Cited by 3 publications

(8 citation statements)

References 10 publications

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“…Futher, increase in the number of bank branches by 1101.7%, especially in the rural and the semi-urban areas and increase in their viability during the period 1969–2012 has re-affirmed the state of financial development in India (Joshi, 2016). Similarly, in Sri Lanka, the banking density in the country increased to 16.8 by 2013, which was an indicator of the increase in the number of bank branches, both nationalized and foreign (De Silva, 2016).…”

Section: Trend Analysis and Stylized Factsmentioning

confidence: 99%

Foreign direct investment, financial development and economic prosperity in major south Asian economies

Sethi

Das

Sahoo

et al. 2020

SAJBS

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PurposeThis paper empirically examines the relationship between foreign direct investment, financial development and other macroeconomic variables like trade openness, domestic investment and labour force and that of GDP per capita in select South Asian countries, i.e. India, Sri Lanka and Pakistan for the period 1990–2018.Design/methodology/approachThe study uses various econometrics tools such as Pedroni, Kao and Johansen–Fisher panel cointegration test, Panel FMOLS and DOLS and Granger causality in order to analyse the long-run and short-run dynamics among the variables under consideration.FindingsThe results of the panel data estimation techniques employed imply that there is a short-run causality running from GDP per capita to FDI and financial development, and results from FMOLS and DOLS indicate that FDI and financial development have positive impacts on GDP per capita in the countries under consideration.Originality/valueIn this paper, we use a dynamic macroeconomic modelling framework to examine the effect of FDI and financial development on per capita income in three major south Asian economies, which are categorized as three Non-Least Developed Contracting States under the South Asian Free Trade Area (SAFTA), 2006, established with an aim to facilitate free trade among them. Considering the diversity of the level of growth experienced by these economies, the study uses appropriate panel regression techniques. Therefore, in addition to proper formulation of policies directed towards scaling up of export and import levels, the respective authorities should also take care that the political stability and institutional quality are maintained.

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Section: Trend Analysis and Stylized Factsmentioning

confidence: 99%

Foreign direct investment, financial development and economic prosperity in major south Asian economies

Sethi

Das

Sahoo

et al. 2020

SAJBS

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“…Hence, it is more reasonable to assume that Sri Lanka has a supply-leading structure. Specifically, previous literature in the Sri Lankan context (Ahmed & Ansari, 1998;Fase & Abma, 2003;Habibullah & Eng, 2006;De Silva, 2016, for instance) also supports the view that it is the financial sector development that leads to economic growth but not the other way around. Accordingly, this study focuses on the supplyleading rationale of the nexus between financial development and economic growth.…”

Section: Literature Reviewmentioning

confidence: 70%

“…Economic growth is usually measured in terms of the annual percentage change in GDP (Gross Domestic Product). In previous literature, two measures have been used to represent economic growth: the growth of real GDP (Ahmed & Ansari, 1998;Paun et al, 2019, for instance) and the growth rate of real per capita GDP (Ahmed & Ansari, 1998;Levine & Zervos, 1998;Perera & Ichihashi, 2016;De Silva, 2016;Guru & Yadav, 2019;Paun et al, 2019, among other studies). The growth rate of real per capita GDP indicates the changes in both real GDP and population.…”

Section: The Proposed Modelmentioning

confidence: 99%

“…Accordingly, in literature, there are attempts to inquire into the link between each of these sectors and economic growth. The number of studies that examine the relationship between financial sector development and economic growth in the Sri Lankan context is only a few (Ahmed & Ansari, 1998;Sinha & Macri, 2001;Hemachandra, 2005;Habibullah & Eng, 2006;Fase & Abma, 2003;Jahfer & Inoue, 2014;De Silva, 2016). Even in these studies, the impact of financial sector development on economic growth is examined from either a bank-based or market-based perspective, meaning that the financial sector in those studies is assumed to be represented by either the banking sector or equity markets.…”

Section: Introductionmentioning

confidence: 99%

“…Even in these studies, the impact of financial sector development on economic growth is examined from either a bank-based or market-based perspective, meaning that the financial sector in those studies is assumed to be represented by either the banking sector or equity markets. Ahmed and Ansari (1998), Sinha and Macri (2001), Hemachandra (2005), Habibullah and Eng (2006), Fase and Abma (2003), and De Silva (2016) use banking sector variables to represent the financial sector development while Jahfer and Inoue (2014) uses the stock market to represent the same.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

The Impact of Financial Sector Development on Economic Growth: Evidence from Sri Lanka

Samuditha Ganepola,

Prabhath Jayasinghe

2023

VJM

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The objective of this study is to examine the impact of financial sector development on economic growth in Sri Lanka by taking two complementary sectors, namely banking and equity markets, to represent the financial sector. All previous studies in the Sri Lankan context have examined this relationship employing either the banking sector variables or equity market variables to represent the financial sector. This study is in favour of the supply-leading hypothesis and it tests the empirical validity of the hypothesis. The proposed model has been estimated with five banking sector variables and two equity market variables. Autoregressive Distribution Lag (ARDL) bounds testing approach is employed to identify the existence of short- and long-run relationships. The study relies on quarterly data from 2002:01 to 2020:04. Findings reveal that there exists a long-run relationship between financial sector variables and economic growth. More specifically, the size of financial intermediaries, interest rate, monetization, and size of the stock market have a significant positive impact on economic growth in the long-run. Somewhat surprisingly, the availability of credit to the private sector has a significant negative impact. All seven variables significantly influence economic growth in the short-run. Overall, the results of this study support the supply-leading hypothesis or the notion that financial sector development affects economic growth. These findings are mostly in line with previous literature. The results of seven diagnostic tests show that the estimated model is adequate for the purpose and estimation results are reliable. The study has some important policy implications. Keywords: Financial sector development, Economic growth, Banking sector development, Equity market development, ARDL

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A Causal Analysis of Financial Development and Economic Growth

Islam

Ahmad

2022

Preprint

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In terms of cause and effect, financial development and economic growth relationship has been a major empirical issue for researchers and policy makers. This study explores the causal linkages between financial development and economic growth catering for country specificity and structural shocks pertaining to different cross sections in SAARC and ASEAN countries by calling in the bootstrapping technique proposed by Kónya (2006). We considered the panel estimation to allow for contemporaneous correlations and performed Wald test for Granger Causality with country specific bootstrap critical values catering for structural breaks. Empirical investigation reveals the existence of both the demand and supply leading phenomena for the selected period of 1980–2017. The direction of causality is sensitive measures and proxies used for financial development.

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Financial Intermediation Development and Economic Growth Nexus in Sri Lanka

Abstract: Abstract

Cited by 3 publications

References 10 publications

Foreign direct investment, financial development and economic prosperity in major south Asian economies

Foreign direct investment, financial development and economic prosperity in major south Asian economies

The Impact of Financial Sector Development on Economic Growth: Evidence from Sri Lanka

A Causal Analysis of Financial Development and Economic Growth

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