How Financial Development Affects Economic Growth: Evidence from some SAARC Countries

2020 ◽  
pp. 52-66
Author(s):  
Abu K. ◽  
Monzurul I.U.
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
South Asian ◽  
Banking Sector ◽  
Panel Data Analysis ◽  
Empirical Studies ◽  
Empirical Work ◽  
Unit Root Test ◽  
Annual Data ◽  
Asian Countries

According to Joseph Schumpeter (1911), services provided by financial intermediaries are essential for technical innovation and economic growth. Later, empirical work by Goldsmith (1969) and McKinnon (1973) supported that there were close ties between financial and economic development for a few countries. But numerous other economists, including Robinson (1952) believed that finance was not so important for economic growth; financial development simply follows economic growth. Despite this debate, Levine (1993), among others suggests a positive relationship between financial sector development and economic growth. Moreover, there remains further debate whether the country's financial structure exerts differential impact on economic growth. Empirical studies across the countries (Rajan and Zingales, 1999) suggest that banking sector plays a key role in some countries. In this paper, I intend to investigate whether higher levels of financial development are positively correlated with economic growth using empirical evidence from five South Asian countries namely Bangladesh, India, Nepal, Pakistan and Sri Lanka. I have used Panel data analysis, Linear regression model, Levin-Lin-Chu unit root test, Covariance, Correlation and VIF test based on aggregate annual data from 1993 to 2016. My analysis suggests that development in banking sector has a moderately strong tie to promoting economic growth. The result implies that the policy should focus on banking sector development by enhancing its quality of credit products and offers to private sector as it is the main stimulator for growth in these five South Asian countries.

scholarly journals Investigating the Influence of Financial Development Indicators on Economic Growth: Evidence from South Asia

2018 ◽  
Vol 7 (3) ◽  
pp. 9
Author(s):  
Muhammad Tahir ◽  
Khizar Hayat ◽  
Nisar Ahmad
Keyword(s):  
Economic Growth ◽  
South Asia ◽  
Financial Development ◽  
South Asian ◽  
Trade Openness ◽  
Unit Root Test ◽  
Final Conclusion ◽  
Asian Countries ◽  
Development Indicators ◽  
Independent Variables

The study empirically investigates the influence of Financial Development on Economic Growth in South Asia by using six indicators of Financial Development i-e: Gross Fixed Capital Formation (GFCP), Broad Money (M2), Domestic Credit to Private Sector (DCPS), Market Capitalization (MC), Trade Openness (TO) and Foreign Direct Investment (FDI). While Economic Growth is measured by Real Gross Domestic Product per Capita (GDP). For this purpose, the study used panel data from “World Development Indicators” for the period of 1980-2015 of six major South Asian countries i.e. Pakistan, India, Bangladesh, Bhutan, Sri Lanka and Nepal. These countries have common feature of being under-developed. The study shows its uniqueness by considering six under-developed South Asian countries and applying three result estimation techniques i-e: Pooled Group Mean (PMG), The Mean Group (MG) and The Dynamic Fixed Effect (DFE). Different results were produced through these three techniques. Final conclusion was drawn on the basis of Hausman test; that is PMG model estimation technique. Unit root test was also applied to check stationarity. The long run results of PMG model show significance of all independent variables, while short run results state insignificance of all independent variables except FDI. The results are consistent with the literature. Along with other recommendations, the study, especially, focuses that the trade barriers should be removed among South Asian countries as trade openness has positive influence on economic growth.  It will result in expanding the magnitude of growth.

Financial Development and Economic Growth

2015 ◽  
pp. 233-245
Author(s):  
Filiz Eryılmaz ◽  
Hasan Bakır ◽  
Mehmet Mercan
Keyword(s):  
Economic Growth ◽  
Data Analysis ◽  
New Zealand ◽  
Financial Development ◽  
Positive Relationship ◽  
Panel Data Analysis ◽  
Annual Data ◽  
The Subject ◽  
The Relationship

The relationship between financial development and economic growth has been the subject of considerable debate in development and growth literature. Therefore this chapter provides evidence on the role of financial development in accounting for economic growth in 23 OECD countries (Italy, Japan, Luxemburg, Holland, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, England, USA, Australia, Austria, Belgium, Canada, Denmark, Finland, Turkey, France, Germany, Greece, Iceland) via panel data analysis using the annual data for the period 1980-2012. The authors find a positive relationship between financial development and economic growth for all countries. Also this result means that financial development leads economic growth in these countries. So the results may help policymakers formulate effective financial sector policies as a tool to promote economic growth.

scholarly journals Causal nexus between fiscal deficit and economic growth

2016 ◽  
Vol 4 (8) ◽  
pp. 1-19
Author(s):  
Ravinthirakumaran Navaratnam ◽  
Kasavarajah Mayandy
Keyword(s):  
Economic Growth ◽  
Sri Lanka ◽  
South Asian ◽  
Negative Impact ◽  
Positive Impact ◽  
Cointegration Analysis ◽  
Annual Data ◽  
Fiscal Deficit ◽  
Asian Countries ◽  
The Impact

The impact of fiscal deficit on economic growth is one of the most widely debated issues among economists and policy makers in both developed and developing countries in the recent period. This paper seeks to examine the impact of fiscal deficit on economic growth in selected South Asian countries, namely, Bangladesh, India, Nepal, Pakistan and Sri Lanka using time series annual data over the period 1980 to 2014. The paper uses cointegration analysis, error correction modelling and Granger causality test under a Vector Autoregression (VAR) framework. The results from this study confirmed that the fiscal deficit has a negative impact on economic growth in the South Asian countries considered in this study except Nepal, which confirmed the positive impact. The results also highlighted that the direction of causality for the SAARC countries is mixed where fiscal deficit causes economic growth for Bangladesh, Nepal and Pakistan, but the reverse is true for India and Sri Lanka.  

scholarly journals Remittances and Economic Growth Tie in Selected South Asian Countries: A Panel Data Analysis

2019 ◽  
Vol 11 (1) ◽  
pp. 197
Author(s):  
Md. Nezum Uddin ◽  
Mohammed Jashim Uddin ◽  
Md. Joynal Uddin ◽  
Monir Ahmmed
Keyword(s):  
Economic Growth ◽  
Panel Data ◽  
South Asian ◽  
Panel Data Analysis ◽  
Past Century ◽  
Asian Countries ◽  
Panel Data Estimation ◽  
Panel Data Estimation Techniques ◽  
Causality Tests ◽  
Heated Debate

Remittances are regarded one of the foremost financial resources globally. Over the past century, in the developing economy, there is a heated debate on the sources of economic growth. The current paper attempts to analyze how economic growth is being impacted by remittance in five selected South Asian countries between the period 1975 and 2017. Estimated results from panel-data estimation techniques exhibit a positive relation between economic growth and remittance in these countries. The results from Granger-causality tests suggest that remittance plays a catalyst role to bring economic growth but economic growth doesn’t play any role to bring remittance while Dumitrescu Hurlin Causality tests found a bi-directional relationship. Important finding of the study is that remittance boost economic growth in South Asian region.

scholarly journals Technology and Economic Growth: Role of Financial Development in South Asian Countries

2019 ◽  
Vol 5 (2) ◽  
pp. 323-332 ◽  
Author(s):  
Imran Sharif Chaudhry ◽  
Samina Sabir ◽  
Fatima Gulzar
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
South Asian ◽  
Method Of Moment ◽  
Asian Countries ◽  
Development Technology ◽  
Generalized Method Of Moment ◽  
Sustainable Economic Growth ◽  
The Impact

Financial development plays an instrumental role in the process of economic growth and development through mobilization of savings and creating investment opportunities. Financial development also leads to enhance the level of technology by providing finance to entrepreneurs for technological innovations which leads to economic growth. This study examines the impact of financial development and technology on economic growth of selected South Asian countries over the time span 1984-2017. Due to endogeneity problem, the empirical model used in the study is estimated by System Generalized Method of Moment (System GMM). Empirical results indicated that financial development, technology and human capital have positive and significant impact on economic growth in developing South Asian countries. To attain a sustainable economic growth, South Asian countries should put their efforts to develop their financial market that stimulates economic growth by providing finance to entrepreneurs for innovations.

scholarly journals How Do Population and Urbanization Cause Environmental Degradation in South Asian Countries? A Panel Data Analysis

2020 ◽  
Vol 6 (4) ◽  
pp. 799-809
Author(s):  
Noreen Safdar ◽  
Shezza Ashraf ◽  
Fatima Farooq ◽  
Junaid Qadir
Keyword(s):  
Economic Growth ◽  
South Asian ◽  
Environmental Degradation ◽  
Negative Impact ◽  
Panel Data Analysis ◽  
Negative Influence ◽  
Causality Analysis ◽  
Asian Countries ◽  
Cross Sectional ◽  
Population Urbanization

The following study shows the economic consequences of population and environmental degradation in selected South Asian Countries for the time period 2000- 2018. Panel cointegration shows the long-run association among population, urbanization, environment and economic growth. By using PMG estimation technique, the results show that environmental degradation has a negative influence on economic growth while the urban population has a progressive impact on economic growth while the total population has a negative impact on economic growth. The results of causality analysis show that there is bidirectional causality among all variables which indicates that population, urbanization, environment and economic growth are causing each other. It is also noticed by the causality analysis that population, urbanization and economic growth are causing environmental degradation in south Asian countries. Further the results show that there is cross-sectional dependency among all variables in selected countries which reveals that all these countries should make collaborative strategies to increase economic growth and to cope up the problem of environmental degradation.

scholarly journals Financial Development Influence on Economic Growth in Albania

2016 ◽  
Vol 5 (1) ◽  
pp. 59
Author(s):  
Eugen Musta
Keyword(s):  
Economic Growth ◽  
Financial Development ◽  
Banking Sector ◽  
Empirical Studies ◽  
Aggregate Demand ◽  
Sustainable Growth ◽  
Influential Factor ◽  
Demand Model ◽  
Time Series Regression ◽  
Policy Makers

During the 2000s the private banking sector in Albania started to consolidate and the level of lending in the economy started to grow. In the same period the overall economic indicators were showing positive growth too, but that all changed after the financial crisis of 2008. It took a while for its effects to hit the country but when they came the economy started to slowdown and the banks while facing a rise in Non-Performing Loans (NPL) started to cut out lending. The drop on lending is considered a problem by policy makers who see a pattern of causality in the finance – growth nexus based on theoretical works saying that finance development can influence growth. Even though the theory linking economic growth with financial development is not unanimously accepted on academic circles, empirical studies support the fact that a better developed financial system helps to support a sustainable growth. This seems enough to keep policy makers concerned with keeping lending high in the economy. The purpose of this study is to find if there is a pattern of such correlation between lending and growth in the Albanian economy. For the purpose data from the last 21 years have been analyzed through a time series regression where per capita GDP growth rate is the dependable variable and the domestic credit to private sector by banks is undependable variable. For the analyze is based on the aggregate demand model where credit is influencing investments, the influence which government spending may have on output is tested it the regression as an influential factor. The result showed that the explanatory variable coefficient is negative, suggesting that in this case the financial sector growth has a negative effect on growth. We assume this is so because the main channel through which the finance influences growth, which is by allocating capitals towards the most efficient opportunities, is not actually working and this can be seen by the high number of non-performing loans on the banks’ balance sheets.

Financial Development–Economic Growth Nexus: Evidence from South Asian Middle-income Countries

2017 ◽  
Vol 18 (4) ◽  
pp. 924-935 ◽  
Author(s):  
Krishna Murari
Keyword(s):  
Economic Growth ◽  
Stock Market ◽  
Financial Development ◽  
South Asian ◽  
Banking Sector ◽  
Middle Income ◽  
Market Capitalization ◽  
Middle Income Countries ◽  
Fixed Capital Formation ◽  
Domestic Credit

In this article, we have tried to explore the relationship between financial development and economic growth, using a panel data of South Asian middle-income countries for the years 1980–2013. The macroeconomic data include real GDP index as an indicator of economic growth, proxies for financial development—domestic credit by banking sector/GDP, domestic credit to private sector/GDP, net inflows of FDI/GDP, M2/GDP and market capitalization/GDP and control variables such as fixed capital formation/GDP, investment/GDP, and inflation in consumer prices/GDP. The results indicate that the domestic credit provided by the banking sector has a significant association with economic growth in both directions but domestic credit to the private sector is associated with the economic growth in forward direction only, which confirms dearth in credit allocation in the region and suggests pathetic financial regulation and supervision. As far as the stock market developments are concerned, the results indicate that the stock market capitalization and liquidity have a significant role in growth and economic growth induces the stock market capitalization (size). Both the forms of investment (domestic and FDI) contribute significantly to economic growth in either direction. Stronger financial institutions, fixed capital formation and low inflation are crucial growth controlling factors.

scholarly journals Financial Inclusion and Determinants in South Asian Countries

2020 ◽  
Vol 6 (2) ◽  
pp. 623-633
Author(s):  
Robina Badar ◽  
Sofia Anwar ◽  
Syed Asif Ali Naqvi
Keyword(s):  
Economic Growth ◽  
South Asian ◽  
Financial Services ◽  
Banking Sector ◽  
Multinomial Logistic Regression ◽  
Financial Inclusion ◽  
Easy Access ◽  
Asian Countries ◽  
Structural Problems ◽  
Gender Education

Financial inclusion is considered an essential mediator to achieve economic growth in recent years. The main focus of this study is to construct the financial inclusion index and to explore the determinants of financial inclusion in Pakistan, Bangladesh, and India. Data is collected from InterMedia's financial inclusion insights datasets 2016 that are collected through random sampling. The financial inclusion index is used as a dependent variable that is calculated using levels of access and usage of financial services. Age, gender, education, financial situation, working type and use of mobile phones are used as independent variables. Results of multinomial logistic regression reveals that in South Asian countries educated, male, relatively older, rich and regular employees have a better chance to be financially included. Mobile phone users also prefer high financial inclusion. Developing countries like Pakistan, Bangladesh, and India can attain inclusive growth by increasing the contribution of weaker sections of the population with the mainstream. If weaker sections of the population have easy access to financial services, the economic growth of a country can be enlarged. So policymakers should focus on the financial sector's structural problems and pay attention to create modern financial institutes both in the banking sector and in financial markets.

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