Financial development and economic growth in GCC countries

2014 ◽  
Vol 41 (6) ◽  
pp. 493-514 ◽  
Author(s):  
Rihab Grassa ◽  
Kaouthar Gazdar
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Financial System ◽  
Generalized Least Squares ◽  
Islamic Finance ◽  
Financial Reforms ◽  
Content Type ◽  
Gcc Countries ◽  
Operating Side

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.

Financial development and economic growth in Tanzania: an ARDL and bound testing approach

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Saganga Mussa Kapaya
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Time Series Data ◽  
Developing Economies ◽  
Financial System ◽  
Principal Component ◽  
Series Data ◽  
Content Type ◽  
Testing Procedures ◽  
Positive Effects

Purpose The purpose of this study is to empirically weigh the evidence for financial depth, liquidity and efficiency role to economic growth, and test for the existence of cointegration between financial development variables and economic growth in Tanzania. Design/methodology/approach The study used the autoregressive distributed lag model with bound testing procedures. The sample covered yearly time-series data from 1980 to 2017, i.e. 38 years. Findings The results suggest that financial system depth is positively related to economic growth in the short run and that financial system liquidity and efficiency is strongly negatively associated with economic growth both in the short and long run. Further, it is found that financial development is cointegrated with economic growth. Thus, financial reforms and liberalisation have not fully brought the desired positive effects on economic growth yet. Originality/value The study uses principal component analysis to capture specific dimensions within the financial system as an intuitive way to aggregate financial development effects. Unlike studies that included several countries with heterogeneous characteristics, which are sometimes difficulty to homogenise, in recognition of countries’ unique experiences, this study uses data from Tanzania as a specific case. It documents pertinent pieces of evidence for a developing economy necessary for financial policy adjustments post the financial and economic liberalisation and reforms period. It nevertheless sheds light on financial policies for other comparable developing economies during and after both financial and economic liberalisation settings.

On building social capital for Islamic finance

2015 ◽  
Vol 8 (1) ◽  
pp. 2-19 ◽  
Author(s):  
Adam Ng ◽  
Mansor Ibrahim ◽  
Abbas Mirakhor
Keyword(s):  
Social Capital ◽  
Financial Development ◽  
Risk Sharing ◽  
Design Methodology ◽  
Empirical Studies ◽  
Financial System ◽  
Islamic Finance ◽  
Investment Opportunity ◽  
Content Type ◽  
Practical Implications

Purpose – The purpose of this paper is to set forth seven broad recommendations and 15 specific initiatives within a four-dimensional framework for the development of social capital in Islamic finance, particularly the stock market, given its role as the first best means of risk sharing. Design/methodology/approach – The four-dimensional framework comprises dimensions of principle and value, trust-reinforcing regulation, investment opportunity and infrastructure, as well as reputational intermediaries. Findings – A web of multi-pronged initiatives that are mutually reinforcing is proposed considering the multifaceted dimensions of social capital and the various possible transmission channels by which social capital can influence the financial system. Practical implications – While empirical studies have demonstrated the importance of trust and ethics in financial development, the pressing issue remains how social capital, including trust and ethics, can be developed to achieve a trustworthy, ethical and efficient financial system. This paper attempts to address this concern. Originality/value – This paper provides a framework for building social capital in Islamic finance.

Technological development, financial development, and economic growth in India: Is there a non-linear and asymmetric relationship?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Arun Kumar Giri ◽  
Geetilaxmi Mohapatra ◽  
Byomakesh Debata
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Technological Development ◽  
Content Type ◽  
Significance Level ◽  
Long Run ◽  
Non Linear ◽  
Causality Tests ◽  
Asymmetric Causality

PurposeThe main purpose of the present research is to analyze the relationship between technological development, financial development and economic growth in India in a non-linear and asymmetric framework.Design/methodology/approachThe study employs the nonlinear autoregressive distributed lags model (NARDL) and Hetemi J asymmetric causality tests to explore nonlinearities in the dynamic interaction among the variables. The stationarity properties of data are checked by using Ng–Perron and ADF structural break unit root tests. The unit root test confirms that the variables are non-stationarity in level and are differenced stationary.FindingsThe study finds that there is a cointegrating relationship between technological development, financial development and economic growth in the long run. The findings suggest that a positive shock in technological development increases economic growth (coefficient value 1.497 at 1% significance level) and a negative shock will harm economic performance (coefficient value −0.519 at 1% significance level). A long-term positives shock in financial development boosts the economy (coefficient value 1.08 at 5% significance level) and negative shock hampers the economic performance (coefficient value −1.09 at 5% significance level). The asymmetric causality test result confirms bi-directional causality between technological development and economic growth and unidirectional causality from negative economic growth to negative technological development and bi-directional causality between economic growth and financial development, unidirectional negative financial development to economic growth.Research limitations/implicationsThe results of this research can significantly facilitate stakeholders and policymakers in devising short-term as well as long-term policies for financial development and technological innovation to achieve sustainable long-run economic growth in India.Originality/valueThis paper is the first of its kind to empirically examine the cointegrating and causal relationship between technology, financial development and economic growth in India using non-linear asymmetric cointegration and causality tests.

Financial development, Islamic finance and economic growth: evidence of the UAE

2017 ◽  
Vol 8 (1) ◽  
pp. 2-22 ◽  
Author(s):  
Hajer Zarrouk ◽  
Teheni El Ghak ◽  
Elias Abu Al Haija
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Economic Activity ◽  
Financial Sector ◽  
Empirical Literature ◽  
Series Data ◽  
Islamic Finance ◽  
Reverse Causality ◽  
Content Type ◽  
Thomson Reuters

Purpose Does Islamic finance affect economic growth? The empirical literature in this area seems to be in early stages and the results are often mixed and inconclusive. This paper aims to examine the causality between financial development in general, Islamic finance in particular and real economic growth in the United Arab Emirates (UAE). Design/methodology/approach Using time series data from 1990 to 2012, a bivariate vector autoregressive model was used to document the financial development-Islamic finance-growth causal nexus and to forecast growth under various scenarios. A composite indicator, as a proxy for financial development, was determined using a non-parametric approach: data envelopment analysis. Findings The direction of causality runs from financial development to economic growth and the reverse causality does not drive this relationship; however, the real gross domestic product (GDP) causes Islamic financial development with no reverse effect. Furthermore, the forecasting results indicate that the past relation has been a proxy for the future where financial development leads to better progress in real economic activity. This will likely continue to stimulate the development of Islamic finance. Research limitations/implications Because the financial markets in the UAE were established in 2000, this study ignored Islamic bonds and equity product. The value of the Sukuk listed on Dubai’s exchanges is around US$36.75bn (Thomson Reuters, 2015), reinforcing Dubai’s position as an international center for Sukuk activity. Among the most important tools of the Islamic financial sector, Sukuk deserves a closer empirical study. This can set the agenda for future work. Practical implications The financial sector appears to be one of the main drivers of real economic activity. However, more effort in the area of Islamic finance is needed to promote Shari’ah-compliant economic activities and thus better contribute toward making Dubai-UAE the capital of the Islamic economy. Originality/value A new indicator was used to evaluate the financial strength of the UAE and analyze its effect on economic development. In addition, as one of UAE’ emirates, Dubai declared its vision in 2013 to become the “capital of the Islamic economy”, this study analyzed the finance, Islamic finance and growth relations over the period 2013-2022.

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.

Board gender diversity and firms' social engagement in the Gulf Cooperation Council (GCC) countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohammad Jizi ◽  
Rabih Nehme ◽  
Cynthia Melhem
Keyword(s):  
Social Engagement ◽  
Generalized Least Squares ◽  
Governance Structure ◽  
Gulf Cooperation Council ◽  
Foreign Direct Investments ◽  
Corporate Boards ◽  
Female Representation ◽  
Content Type ◽  
Gcc Countries ◽  
Thomson Reuters

PurposeThe Gulf Cooperation Council (GCC) countries form a unique socioeconomic environment that makes the conclusions of the prior literature not likely to be applicable. GCC countries have huge oil reserves, yet they are aiming at reducing oil dependency through enhancing transparency, increasing foreign direct investments and reforming their governance structure. Their firms are mainly family owned and have low female representation in leadership positions. The study seeks to fill a literature gap by providing a business case supporting the call for gender diverse boards for better governance.Design/methodology/approachThe study examines a sample of GCC-listed firms for the years 2009–2018. Three measures are used to proxy for firm social engagement, namely, CSR strategy score, environmental, social and governance (ESG) disclosure score and social pillar score. To ensure whether the presence of women on board or the number of women on board is influential on social engagements, the authors use the existence of women on board and the percentage of women on board variables. Data are collected using Thomson Reuters, and generalized least squares (GLS) panel data regression is used to estimate relationships.FindingsThe authors find that female representation on GCC corporate boards is increasing, yet in a slow path. The reported results support the role of women on boards in prompting firms' social agenda and enhancing the level of sustainability reporting. The results also show that female board representation supports the implementation of climate change policy, business ethics policy and health and safety policy.Originality/valueThe paper evidence the add value of women participation on GCC corporate boards in enhancing boards' functionality and governance. The empirical findings encourage firms and policymakers in the GCC countries to increase the share of females on corporate boards to improve firms' citizenship and facilitate attracting foreign investors.

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.

The persistent effect of banking crises on investment and the role of financial markets

2014 ◽  
Vol 6 (1) ◽  
pp. 64-77 ◽  
Author(s):  
Felix Rioja ◽  
Fernando Rios-Avila ◽  
Neven Valev
Keyword(s):  
Financial Markets ◽  
Financial Development ◽  
Banking Crisis ◽  
Banking Crises ◽  
Output Growth ◽  
Long Term Effects ◽  
Content Type ◽  
Negative Effect

Purpose – While the literature studying the effect of banking crises on real output growth rates has found short-lived effects, recent work has focused on the level effects showing that banking crises can reduce output below its trend for several years. This paper aims to investigate the effect of banking crises on investment finding a prolonged negative effect. Design/methodology/approach – The authors test to see whether investment declines after a banking crisis and, if it does, for how long and by how much. The paper uses data for 148 countries from 1963 to 2007. Econometrically, the authors test how banking crises episodes affect investment in future years after controlling for other potential determinants. Findings – The authors find that the investment to GDP ratio is on average about 1.7 percent lower for about eight years following a banking crisis. These results are robust after controlling for credit availability, institutional characteristics, and a host of other factors. Furthermore, the authors find that the size and duration of this adverse effect on investment varies according to the level of financial development of a country. The largest and longer-lasting decrease in investment is found in countries in a middle region of financial development, where finance plays its most important role according to theory. Originality/value – The authors contribute by finding that banking crisis can have long-term effects on investment of up to nine years. Further, the authors contribute by finding that the level of development of the country's financial markets affects the duration of this decrease in investment.

The relationship between financial development and effectiveness of monetary policy: new evidence from ASEAN-3 countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zulkefly Abdul Karim ◽  
Danie Eirieswanty Kamal Basa ◽  
Bakri Abdul Karim
Keyword(s):  
Monetary Policy ◽  
Money Supply ◽  
Financial Development ◽  
Open Economy ◽  
Banking Sector ◽  
Financial System ◽  
The Philippines ◽  
Output Growth ◽  
Content Type ◽  
The Relationship

Purpose This paper aims to investigate the relationship between financial development (FD) and monetary policy effectiveness (MPE) on output and inflation in ASEAN-3 countries (Singapore, Malaysia and the Philippines). Design/methodology/approach This study uses an open economy structural vector autoregressive model to generate MPE. Then, an autoregressive distributed lagged (ARDL) model is used to analyze the effect of FD on MPE across countries. Findings The findings revealed that FD plays a different role in MPE across countries. In Malaysia, a more developed financial system tends to reduce the MPE on output, whereas in Singapore, results show that the more developed financial system (stock market capitalization) tends to increase MPE on output. However, in the Philippines, the main results show that the effect of FD (liquid liabilities) upon MPE on output is depending on the policy variable (interest rates or money supply). Originality/value This paper fills this gap by providing the first study of ASEAN-3 countries in examining how effective is a monetary policy in response to the development of the financial market across the country. Second, this paper considers two FD indicators, namely, the banking sector and capital market development in investigating its effect on MPE on output and inflation. Third, the authors construct the MPE in each country using a structural (identified) VAR model by aggregating the response of output growth and inflation rate on monetary policy changes (interest rate and money supply) using impulse–response function. Regarding this, the results of this study provide new empirical evidence and insight into the long debate on the relationship between FD and the MPE.

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.

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