Triple vectorial analysis of financial development impact on economic growth: evidence from the Middle East and Central Asia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rim El Khoury ◽  
Etienne Harb ◽  
Nohade Nasrallah
Keyword(s):  
Economic Growth ◽  
Middle East ◽  
Central Asia ◽  
Financial Development ◽  
Financial Stability ◽  
Foreign Direct Investments ◽  
Developing Regions ◽  
Content Type ◽  
Economic Agents ◽  
Panel Data Regression

PurposeThis paper provides a state-of-the-art review of the financial development in the Middle East and Central Asia (MECA) and examines its impact on its economic growth.Design/methodology/approachThe authors use a Panel Data Regression Analysis on a sample of 21 countries in MECA for the period 2008–2018.FindingsUsing the financial development indices and subindices retrieved from IMF, the study finds that the whole region has a below average index compared to other developing regions. However, this hides a great deal of variation across MECA countries. Surprisingly, financial development does not necessarily contribute to economic growth. It seems that some developing countries are still not predisposed to benefit from financial development due to several obstacles.Practical implicationsThe authors recommend policymakers and regulators in MECA to promote financial stability and keep inflation in check so that economic agents can reap the fruits of financial development and foster economic growth. Policymakers should also stimulate competition in the financial sector, build skillful human capital, attract foreign direct investments, strengthen supervision and forensic audit and more importantly reinforce the independence of central banks.Originality/valueThe authors mitigate the shortcomings of single indicators as proxies for financial development by using the IMF Financial Development index that captures the depth, access and efficiency of both financial institutions and financial markets. The authors employ lower-middle-, upper-middle and high-income country groups to test the magnitude of income level on the relationship between financial development and economic growth.

Impact of remittances on economic performance in consideration of institutional quality

2020 ◽  
Vol 47 (3) ◽  
pp. 479-507
Author(s):  
Surya Nepal ◽  
Sae Woon Park ◽  
Sunhae Lee
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
South Asia ◽  
Central Asia ◽  
Financial Development ◽  
Economic Performance ◽  
Institutional Quality ◽  
Content Type ◽  
The Impact ◽  
Asian Developing Countries

PurposeThe purpose of this paper is to empirically assess the impact of remittances on the economic performance of the 16 Asian developing countries, taking account of their institutional qualities.Design/methodology/approachA panel of 16 Asian developing countries (Central Asia, South Asia, and ASEAN) over the period of 2002–2016 is employed in the analysis. To assess the impact of remittances on economic performance in consideration of institutional quality, OLS estimates as well as GMM are used.FindingsThe effect of remittances on economic growth is statistically significant. In addition, they also impact economic growth when they interact with institutional or financial development variables. For the long-run growth process of Central Asian, South Asian, and ASEAN countries, a sound and smooth institutional framework appears to be indispensable. Also, it was found that more fragile economies tend to achieve bigger growth than less fragile economies, as this kind of growth is triggered by more remittances flowing into fragile economies. However, the impact of remittances on growth does not depend on the level of ICT. FDI and financial development have positive impact on growth.Research limitations/implicationsThere are limitations to this research as well. Due to the unavailability of data, several countries had to be removed from this study. The cost of sending money might be an important variable for this study. However, the data on this variable from reliable sources are almost impossible to gather. Therefore, this variable is also not included in this research. The savings from remittances when intermediated through formal financial channels will, in fact, produce a positive allocation and distribution of resources that may eventually become an important source of growth. However, one precondition for larger and greater growth is that remittances need to be well and properly utilized by the financial sector. Therefore, quality institutions should be formed first, which can facilitate investment activities and make the flow of remittances more convenient.Originality/valueThis paper exclusively considers the case of Asian developing countries (Central Asia, South Asia, and ASEAN) to assess the impact of remittances on the economic performance of these countries, with special consideration of the interaction effects of remittances and institutional quality in these emerging Asian economies. The previous studies on the effect of remittances on growth do not conform to one concrete conclusion. This study is undertaken in a bid to get the best possible result on the impact of remittances on the growth of the selected countries, majority of which attract substantial chunk of remittances into their economies.

scholarly journals The drivers of economic growth in China and India: globalization or financial development?

2017 ◽  
Vol 16 (1) ◽  
pp. 54-84 ◽  
Author(s):  
Magda Kandil ◽  
Muhammad Shahbaz ◽  
Mantu Kumar Mahalik ◽  
Duc Khuong Nguyen
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Emerging Market ◽  
Annual Data ◽  
Test Results ◽  
Causality Test ◽  
Content Type ◽  
China And India ◽  
Integration Test ◽  
The Impact

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.

The relationship between financial development and economic growth in Eswatini (formerly Swaziland)

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Siphe-okuhle Fakudze ◽  
Asrat Tsegaye ◽  
Kin Sibanda
Keyword(s):  
Economic Growth ◽  
Granger Causality ◽  
Financial Development ◽  
Granger Causality Test ◽  
Causality Test ◽  
Content Type ◽  
Distributed Lag ◽  
Long Run ◽  
Short Run ◽  
The Relationship

PurposeThe paper examined the relationship between financial development and economic growth for the period 1996 to 2018 in Eswatini.Design/methodology/approachThe Autoregressive Distributed Lag bounds test (ARDL) was employed to determine the long-run and short-run dynamics of the link between the variables of interest. The Granger causality test was also performed to establish the direction of causality between financial development and economic growth.FindingsThe ARDL results revealed that there is a long-run relationship between financial development and economic growth. The Granger causality test revealed bidirectional causality between money supply and economic growth, and unidirectional causality running from economic growth to financial development. The results highlight that economic growth exerts a positive and significant influence on financial development, validating the demand following hypothesis in Eswatini.Practical implicationsPolicymakers should formulate policies that aims to engineer more economic growth. The policies should strike a balance between deploying funds necessary to stimulate investment and enhancing productivity in order to enliven economic growth in Eswatini.Originality/valueThe study investigates the finance-growth linkage using time series analysis. It determines the long-run and short-run dynamics of this relationship and examines the Granger causality outcomes.

scholarly journals Financial and economic stability as ‘two sides of a coin’

2015 ◽  
Vol 7 (4) ◽  
pp. 327-353 ◽  
Author(s):  
Muhammad Ali Nasir ◽  
Mushtaq Ahmad ◽  
Ferhan Ahmad ◽  
Junjie Wu
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Financial Stability ◽  
Strong Association ◽  
Price Stability ◽  
Economic Stability ◽  
Data Set ◽  
Content Type ◽  
The Real ◽  
Stability And Instability

Purpose – The purpose of this paper is to provide a different context for considering issues of financial stability and instability, with reference to economic growth and price stability in particular. Design/methodology/approach – This paper pursued an empirical exploration of six pillars of financial stability, based on a data set for the UK extending from 1985 (Q1) to 2008 (Q2), through the construction of a vector error correction model, including an impulse response function analysis. Findings – The findings show a strong association between the financial and economic stability even in a non-crisis regime. This includes, for example, a strong association exists between the stock market and the real economy; exchange rate appreciation may not provide for long-term real economic growth; inflation does not contribute to real economic growth, both the sensitivity of the economy to yields and a significant lag in transitional effects from financial markets to the real sector; a positive role of credit creation within a non-crisis regime; exchange rate appreciation affects purchasing power; and potential points of linkage between sovereign debt activity and general price levels. Research limitations/implications – The findings should be considered in the context of a concept of the economy as fundamentally dynamic and subject to complex cumulative processes. Practical implications – The findings indicate there is a role for state oversight and intervention within a non-crisis regime based on the complexity of possible interactions that may undermine financial and price stability, with consequences for their association with economic growth. Originality/value – The study provides a new perspective for considering issues of financial stability and instability.

The impact of financial development, economic growth and energy consumption on environmental degradation

2015 ◽  
Vol 26 (5) ◽  
pp. 666-682 ◽  
Author(s):  
Madhu Sehrawat ◽  
A K Giri ◽  
Geetilaxmi Mohapatra
Keyword(s):  
Economic Growth ◽  
Energy Consumption ◽  
Financial Development ◽  
Environmental Degradation ◽  
Series Data ◽  
Development Economic ◽  
Content Type ◽  
Indian Economy ◽  
Long Run ◽  
The Impact

Purpose – The purpose of this paper is to investigate the impact of financial development, economic growth and energy consumption on environment degradation for Indian economy by using the time series data for the period 1971-2011. Design/methodology/approach – The stationary properties of the variables are checked by ADF, DF-GLS, PP and Ng-Perron unit root tests. The long-run relationship is examined by implementing the Autoregressive Distributed Lag bounds testing approach to co-integration and error correction method (ECM) is applied to examine the short-run dynamics. The direction of the causality is checked by VECM framework and variance decomposition is used to predict exogenous shocks of the variables. Findings – The empirical evidence confirms the existence of long-run relationship among the variables. Financial development appears to increase environmental degradation in India. The main contributors to environmental degradation are: economic growth, energy consumption financial development and urbanization. The results also lend support to the existence of environmental Kuznets curves for Indian economy. Research limitations/implications – The present study suggests that environmental degradation can be reduced at the cost of economic growth or energy efficient technologies should be encouraged to enhance the domestic product with the help of financial sector by improving environmental friendly technologies from advanced economies. Originality/value – This paper proposes to make a contribution to the existing literature through examining the relationship between financial development and environmental degradation in Indian economy during 1971-2011 by employing modern econometric techniques.

Exports, financial development and economic growth in Pakistan

2014 ◽  
Vol 13 (2) ◽  
pp. 155-170 ◽  
Author(s):  
Muhammad Shahbaz ◽  
Mohammad Mafizur Rahman
Keyword(s):  
Economic Growth ◽  
Error Correction ◽  
Financial Development ◽  
Error Correction Model ◽  
Causality Analysis ◽  
Bounds Testing ◽  
Causality Test ◽  
Correction Model ◽  
Content Type ◽  
Long Run

Purpose – This paper aims to explore the relationship between exports, financial development and economic growth in case of Pakistan. Design/methodology/approach – The autoregressive distributed lag bounds testing approach to cointegration and error correction model are applied to test the long-run and short-run relationships, respectively. The direction of causality between the variables is investigated by the vector error correction model Granger causality test and robustness of causality analysis is tested by applying innovative accounting approach. Findings – The analysis confirms cointegration for the long-run relation between exports, economic growth and financial development in case of Pakistan. The results indicate that economic growth and financial development spur exports growth in Pakistan. The causality analysis reveals feedback hypothesis that exists between financial development and economic growth, financial development and exports, and, exports and economic growth. Originality/value – This study provides new insights for policy makers to sustain exports growth by stimulating economic growth and developing financial sector in Pakistan.

scholarly journals Financial development, openness in financial services trade and economic growth

2019 ◽  
Vol 3 (2) ◽  
pp. 42-65 ◽  
Author(s):  
Rabia Khatun ◽  
Jagadish Prasad Bist
Keyword(s):  
Economic Growth ◽  
Stock Market ◽  
Financial Development ◽  
Financial Services ◽  
Banking Sector ◽  
Market Development ◽  
Services Trade ◽  
Content Type ◽  
Stock Market Development ◽  
Insurance Sector

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.

Financial development, human capital and its impact on economic growth of emerging countries

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Aaqib Sarwar ◽  
Muhammad Asif Khan ◽  
Zahid Sarwar ◽  
Wajid Khan
Keyword(s):  
Economic Growth ◽  
Human Capital ◽  
Financial Development ◽  
Emerging Economies ◽  
Generalized Method Of Moments ◽  
Emerging Countries ◽  
Data Set ◽  
Content Type ◽  
The World ◽  
The Impact

Purpose This paper aims to investigate the critical aspect of financial development, human capital and their interactive term on economic growth from the perspective of emerging economies. Design/methodology/approach Data set ranged from 2002 to 2017 of 83 emerging countries used in this research and collected from world development indicators of the World Bank. The two-step system generalized method of moments is used to conduct this research within the endogenous growth model while controlling time and country-specific effects. Findings The findings of the study indicate that financial development has a positive and significant effect on economic growth. In emerging countries, human capital also has a positive impact on economic growth. Financial development and human capital interactively affect economic growth for emerging economies positively and significantly. Research limitations/implications The data set is limited to 83 emerging countries of the world. The time period for the study is 2002 to 2017. Originality/value This research contributes to the existing literature on human capital, financial development and economic growth. Limited research has been conducted on the impact of financial development and human capital on economic growth.

Bank-based and market-based development and economic growth: an international investigation

2019 ◽  
Vol 36 (3) ◽  
pp. 365-394 ◽  
Author(s):  
Isaac Boadi ◽  
Daniel Osarfo ◽  
Perpetual Boadi
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Method Of Moments ◽  
Design Methodology ◽  
Generalized Method Of Moments ◽  
Fixed Effect ◽  
Relative Impact ◽  
Content Type ◽  
Regional Effects ◽  
Development Policies

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.

Central Asia drives Syria repatriations to reduce risk

2019 ◽  
Keyword(s):  
Middle East ◽  
Central Asia ◽  
Islamic State ◽  
Direct Link ◽  
Content Type ◽  
Central Asian ◽  
Women And Children ◽  
Muslim Majority ◽  
Reduce Risk

Subject Central Asian policies on repatriating nationals associated with Middle East insurgency. Significance Central Asian governments' concerns about radicalisation among Muslim-majority populations were amplified when hundreds of nationals went to Syria and Iraq in 2014-15 to join Islamic State (IS) and other jihadist groups. They are prioritising the repatriation of women and children, in contrast to European governments' reluctance to approve blanket returns. Impacts The security drive against local extremists will be sustained across Central Asia. Policies towards returning women will not be affected by IS-attributed attacks unless a direct link is made. In Russia, Chechen leader Ramzan Kadyrov is leading on repatriation efforts focused on children.

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