Financial Development and Output: A Synthesis of Time Series Cointegration and Causality Tests for Bangladesh

2016 ◽  
Vol 5 (2) ◽  
pp. 113-132 ◽  
Author(s):  
Anupam Das ◽  
Syeed Khan
Keyword(s):  
Developing Countries ◽  
Financial Development ◽  
Financial Liberalization ◽  
Jel Classification ◽  
Output Growth ◽  
Empirical Literature ◽  
Financial Policies ◽  
Data Set ◽  
Vector Error Correction ◽  
Causality Tests

Since the 1980s, financial liberalization in developing countries has been an important policy prescription of many international organizations including the World Bank (WB) and International Monetary Fund (IMF). It is argued that the liberalization of the financial sector would allocate productive resources in the most efficient way and increase economic growth. However, the relationship between financial liberalization and output is not clear in the existing empirical literature. Applying the cointegration and Granger causality tests within the vector error correction model (VECM) to a data set from 1974 to 2013, our results suggest that output per capita Granger causes financial development, and vice versa. Hence, we find the evidence of bidirectional causality between financial development and GDP in Bangladesh. These results will help policymakers design financial policies in Bangladesh and other developing countries, which face the dilemma of financial liberalization while maintaining a high and stable output growth. JEL Classification: E44, O40, C22

Financial Integrational Effects on Macroeconomic Instability in India

2017 ◽  
Vol 11 (2) ◽  
pp. 143-166
Author(s):  
Niranjan R.
Keyword(s):  
Financial Development ◽  
Financial Integration ◽  
Trade Openness ◽  
Jel Classification ◽  
Financial Openness ◽  
Vector Error Correction ◽  
Vector Error ◽  
International Financial Integration ◽  
Macroeconomic Instability ◽  
Negative Effect

The nexus between international financial integration and economic growth continues to be one of the most debated issues among macroeconomists, and these debates often raise several issues from the theoretical and policy perspectives. Financial integration can catalyse financial development, improve governance and impose discipline on macro-policies. However, in the absence of a basic pre-existing level of supporting conditions, financial integration can aggravate instability (Khadraoui, 2010). In addition, economic theory suggests that increased financial openness intensifies macroeconomic instability. This article investigates the financial integrational effects on macroeconomic instability in terms of output, consumption and investment volatility by employing the vector error correction model (VECM) with empirically reasonably parameters for an emerging economy, India, for the period 1989–2014. From the results, it is evident that financial openness has had a significant effect on output, consumption and investment volatility. Financial development has had a statistically significant negative effect on output, consumption and investment volatility. Similarly, trade openness and terms of trade significantly influence output, consumption and investment volatility. JEL Classification: F36, F41, F43, E32

scholarly journals Savings Mobilization and Financial Development during the Multicurrency Regime Period in Zimbabwe

2017 ◽  
Vol 9 (3(J)) ◽  
pp. 152-162
Author(s):  
Kunofiwa Tsaurai
Keyword(s):  
Financial Development ◽  
Time Series Data ◽  
Empirical Literature ◽  
Series Data ◽  
Correction Model ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
The Subject ◽  
The Relationship

This paper seeks to investigate the relationship between savings and financial development in Zimbabwe using both autoregressive distributive lag (ARDL) and vector error correction model (VECM) approaches for comparison purposes with monthly time series data from January 2009 to August 2015. Four distinct hypotheses emerged from the literature and these are the savings-led financial development, financial development-led savings, feedback effect and the insignificant/no relationship hypothesis. The existence of diverging and contradicting views in empirical literature on the subject matter is evidence that the linkage between savings and financial development is still far from being concluded. Both F-Bounds and Johansen co-integration tests observed that there is a long run relationship between savings and financial development in Zimbabwe. What is even more unique about this study is that both ARDL and VECM noted the presence of a bi-directional causality relationship between savings and financial development in the short and long run in Zimbabwe. The implication of this study is that in order to increase economic growth, Zimbabwe authorities should increase savings mobilization efforts in order to boost financial development, which in turn attracts more savings inflow into the formal financial system.

scholarly journals The Infrastructure–Growth Nexus in Nigeria: A Reassessment

2019 ◽  
Vol 11 (1-2) ◽  
pp. 41-58
Author(s):  
Godday Uwawunkonye Ebuh ◽  
Ifeoma Betty Ezike ◽  
Tersoo Shimonkabir Shitile ◽  
Ebow Suleiman Smith ◽  
Timipre Mary Haruna
Keyword(s):  
Policy Formulation ◽  
Jel Classification ◽  
Output Growth ◽  
Infrastructure Development ◽  
Real Economy ◽  
Causality Test ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Financial Infrastructure

This article re-examines the link between infrastructure development and output growth in Nigeria for policy formulation and implementation. The article employed the Granger causality test based on the time series vector error correction model (VECM) to reinvestigate the nexus between infrastructure investment and economic growth in Nigeria, using quarterly data from 1997:Q1 to 2017:Q4. This study, therefore, interrogates and accepts the infrastructure–growth hypothesis that increased financial infrastructure and infrastructure stock stimulates long-run real economy expansion in the Nigerian context. JEL Classification: H54, E23, C23

The role of institutions in output growth volatility-financial development nexus

2016 ◽  
Vol 43 (6) ◽  
pp. 910-927 ◽  
Author(s):  
Ibrahim Dolapo Raheem ◽  
Kazeem Bello Ajide ◽  
Oluwatosin Adeniyi
Keyword(s):  
Financial Development ◽  
Measurement Errors ◽  
Output Growth ◽  
Policy Implications ◽  
Output Volatility ◽  
Reverse Causality ◽  
Data Set ◽  
Content Type ◽  
Growth Volatility

Purpose The purpose of this paper is to investigate the role of institutions in the financial development-output growth volatility nexus. It provides new channels through which financial development can dampen the output growth volatilities of the countries under investigation. Design/methodology/approach A comprehensive data set for 71 countries covering the period from 1996 to 2012 and the System GMM approach were used. The choice of the methodology is to deal with endogeneity issues such as measurement errors, reverse causality among other issues. Findings A number of findings were emanated from the empirical analysis. First, the estimates provided evidence of the volatility-reducing effect of financial development. Second, institutions do not have the same reducing influence on output growth volatility. Third, the interaction of financial development and institutions showed that the output volatility reduction arising from financial development is enhanced in the presence of improved institutions. Research limitations/implications The policy implications derived from this study are in twofolds: first, it is important for policymakers to formulate policies that would ensure and enhance the development of the financial sectors, since its importance in minimizing output volatility has been established. Second, institutional quality should be developed so as to further enhance the growth volatility-reducing influence of financial development. Particularly, institutions should be improved along the multiple dimensions captured in the analysis. Originality/value To the best knowledge, the novelty of this study to the literature is the introduction of institutions, which is hypothesized to increase the dampening effects of financial development in output growth volatility.

scholarly journals To liberate or to regulate: balanced approach to bank-oriented financial system transformation in developing countries

2017 ◽  
Vol 12 (1) ◽  
pp. 60-66
Author(s):  
Emira Kozarević ◽  
Nedžad Polić ◽  
Amela Perić
Keyword(s):  
Developing Countries ◽  
Financial Regulation ◽  
Financial Liberalization ◽  
Financial System ◽  
Jel Classification ◽  
System Transformation ◽  
Policy Makers ◽  
Economic Progress ◽  
Balanced Approach ◽  
Banking Business

A stable, transparent financial system inspires confidence among investors and supports the overall economic growth. Inflexible regulation tends to slow down economic progress, making countries less attractive to investors. Economies with bank-oriented financial systems tend to be less attractive to investors, so their long-term goal is to demonstrate flexibility through liberalization, attracting new investors and ensuring survival in highly competitive and unforgiving global conditions. Liberalization success is even more essential for developing countries and their efforts to open the borders for capital flows and attract new investments. While financial liberalization affects all sectors of the economy and directly influences growth, it does not guaranty it. The removal of financial restrictions could affect capital distribution, increase volatility, create challenges for banks, etc. To support the liberalization efforts, it is very important to understand the nature of banking business, criticality of transparent and effective regulatory framework, as well as the expectations of potential investors. The main goal of this paper is to discuss the process of financial liberalization in developing countries and motivate the policy makers to consider available lessons when creating their balanced approach to financial (de)regulation processes towards financial development and integration in the global financial landscape. Keywords: financial liberalization, financial regulation, economic development, developing countries. JEL Classification: G18, G21, G28

scholarly journals Democratic Institutions and Variability of Economic Growth in Pakistan: Some Evidence from the Time-series Analysis

2009 ◽  
Vol 48 (3) ◽  
pp. 269-289 ◽  
Author(s):  
Muhammad Zakaria ◽  
Bashir Ahmed Fida
Keyword(s):  
Time Series ◽  
Jel Classification ◽  
Output Growth ◽  
Empirical Literature ◽  
Growth Time ◽  
Growth Equation ◽  
Per Capita ◽  
Using Data ◽  
Capita Output

This paper explores the empirical association between democracy and per capita output growth in Pakistan using data for the period 1947 to 2006. The findings of the paper indicate a weak negative association between democracy and output growth. Consistent with some current empirical literature, democracy is also found to influence output growth indirectly. The empirical results are robust to different democracy variables and output growth equation specifications. The empirical findings also highlight the role of other variables in determining output growth and, except for rising oil prices, show its positive linkage to physical and human capital, government consumption, openness of trade practices and inflation. JEL classification: C22, O43 Keywords: Democracy, Growth, Time-series

Dynamics of Economic Growth, Investment and Trade Openness: Evidence from Bangladesh

2017 ◽  
Vol 6 (1) ◽  
pp. 82-104 ◽  
Author(s):  
Champa Bati Dutta ◽  
Mohammed Ziaul Haider ◽  
Debasish Kumar Das
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
Granger Causality ◽  
Direct Investment ◽  
Trade Openness ◽  
Jel Classification ◽  
Domestic Investment ◽  
Causality Test ◽  
Vector Error Correction ◽  
Causality Tests

This article investigates the causal relationship among foreign direct investment, domestic investment, trade openness and economic growth in Bangladesh over the period 1976–2014. Unit root tests, cointegration methods and Granger causality tests in Vector Error Correction Model (VECM) framework are used to investigate the relationships. The results of Granger causality test based on a stable VECM support a unidirectional causality running from foreign direct investment to growth, domestic investment to trade openness, growth to trade openness and bidirectional causality between domestic investment and growth and foreign direct investment and domestic investment. The results support the investment complementarities in Bangladesh. JEL Classification: E22, F1, O40

scholarly journals Savings Mobilization and Financial Development during the Multicurrency Regime Period in Zimbabwe

2017 ◽  
Vol 9 (3) ◽  
pp. 152
Author(s):  
Kunofiwa Tsaurai
Keyword(s):  
Financial Development ◽  
Time Series Data ◽  
Empirical Literature ◽  
Series Data ◽  
Correction Model ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
The Subject ◽  
The Relationship

This paper seeks to investigate the relationship between savings and financial development in Zimbabwe using both autoregressive distributive lag (ARDL) and vector error correction model (VECM) approaches for comparison purposes with monthly time series data from January 2009 to August 2015. Four distinct hypotheses emerged from the literature and these are the savings-led financial development, financial development-led savings, feedback effect and the insignificant/no relationship hypothesis. The existence of diverging and contradicting views in empirical literature on the subject matter is evidence that the linkage between savings and financial development is still far from being concluded. Both F-Bounds and Johansen co-integration tests observed that there is a long run relationship between savings and financial development in Zimbabwe. What is even more unique about this study is that both ARDL and VECM noted the presence of a bi-directional causality relationship between savings and financial development in the short and long run in Zimbabwe. The implication of this study is that in order to increase economic growth, Zimbabwe authorities should increase savings mobilization efforts in order to boost financial development, which in turn attracts more savings inflow into the formal financial system.

Does Poverty Matter for Tax Revenue Performance in Developing Countries?

2021 ◽  
pp. 227797872110335
Author(s):  
Sèna Kimm Gnangnon
Keyword(s):  
Developing Countries ◽  
Developed Countries ◽  
Jel Classification ◽  
Development Aid ◽  
Tax Revenue ◽  
Least Developed Countries ◽  
Data Set ◽  
Performance Effect ◽  
Generalized Methods Of Moments ◽  
Negative Effect

This article explores the effect of poverty on tax revenue performance (tax revenue share), using an unbalanced panel data set of 102 developing countries over the period from 1996 to 2015. Based on the two-step system generalized methods of moments (GMM) approach, the empirical analysis shows that higher poverty rates significantly reduce tax revenue performance in developing countries. However, the magnitude of this negative effect is lower in least developed countries (LDCs) than in other countries of the sample. The analysis has also revealed that the tax revenue performance effect of poverty depends on the level of household consumption as well as the prevailing unemployment rate in the economy. Finally, development aid inflows help to mitigate the negative effect of poverty on tax revenue performance in developing countries. These findings not only highlight the importance of poverty for tax revenue performance in developing countries, but they additionally show that the provision of higher amounts of development aid to these countries could help them mitigate the adverse tax revenue effect of poverty, and even allow them to enjoy higher tax revenue performance, which is key for attaining their development objectives. JEL Classification: I30, I32, H20

Sign in / Sign up

Export Citation Format

Share Document