International Journal of Econometrics and Financial Management
ISSN (Print): 2374-2011 ISSN (Online): 2374-2038 Website: http://www.sciepub.com/journal/ijefm Editor-in-chief: Tarek Sadraoui
Open Access
Journal Browser
Go
International Journal of Econometrics and Financial Management. 2014, 2(2), 48-58
DOI: 10.12691/ijefm-2-2-1
Open AccessArticle

Financial Development and Economic Growth: A Dynamic Panel Data Analysis

Khalil Mhadhbi1,

1PhD in Economic Sciences, Unit of Research PS2D Prospective Strategy and Sustainable Development, Faculty of Economic Sciences and Management of Tunis; Campus Universitaire El Manar II, Tunis

Pub. Date: March 16, 2014

Cite this paper:
Khalil Mhadhbi. Financial Development and Economic Growth: A Dynamic Panel Data Analysis. International Journal of Econometrics and Financial Management. 2014; 2(2):48-58. doi: 10.12691/ijefm-2-2-1

Abstract

This paper re-examines the empirical relationship between financial development and economic growth. The data cover the regressions according to the maximum of 110 countries and at least 10. It includes developing and developed countries. The study period extends from 1973 to 2012. Imports results obtained using the Generalized Method of Moments dynamic panel show that the variable that influence a significant and positive economic growth, whatever the sample is the variable that reflects the level of availability of the banking system. Contrary to that extent the credits granted by the financial system to the private sector, even if significant, has a negative influence on growth. Finally, the measure that reflects the financial deepening of the economy seems to depend positively on economic growth for developing countries and negatively for developed country.

Keywords:
financial development economic growth developed country developing country panel dynamic Generalized Method of Moments

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

References:

[1]  Adusei, M., “Financial development and economic growth: Is schumpeter right?” British Journal of Economics, Management & Trade, 2(3): 265-278. 2012.
 
[2]  Akimov, A., Wijeweera A., Dollery, “Finance-Growth Nexus: Evidence from Transition Economies” Working Paper Series Economics, n°5, University of New England.2006.
 
[3]  Alonso-Borrego, C., Arellano, M, “Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data,” Journal of Business and Economic Statistics, 17, 36-49.1999.
 
[4]  Andersen, T., Tarp, F, Financial liberalization, financial development and economic growth in LDCs. Journal of international development 15: 189-209. 2003.
 
[5]  Ang, J. B., W.J. McKibbin, “Financial Liberalization, Financial Sector Development and Growth: Evidence from Malaysia”. Journal of Development Economics, 84: 215-233. 2007.
 
[6]  Arellano M., Bond S, “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations”. Review of Economic Studies 58: 277-297. 1991.
 
[7]  Arestis B., Demetriades P.O, Financial development and economic growth assessing the evidence. The Economic Journal 107: 783-799. 1997.
 
[8]  Arellano, M., S. Bond, “Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations.” Review of Economic Studies, 58, 277-297. 1991.
 
[9]  Arellano, M., O. Bover, “Another look at the instrumental variable estimation of error-components models.” Journal of Econometrics, 68, 29-52. 1995.
 
[10]  Baltagi B.H., Demetriades P.O., Law S.H, “Financial development and openness: Evidence from panel data” Journal of Development Economics 89: 285-296. 2009.
 
[11]  Beck T., Levine R, “Stock Markets, Banks and Growth: Panel Evidence” Journal of Banking and Finance 28: 423-442. 2004.
 
[12]  Beck T., Levine R., Loayza N, “Finance and the sources of growth” Journal of Financial Economics 58: 261-300. 2000.
 
[13]  Bencivenga V., Smith B., Starr R, “Transactions Costs, Technological Choice, and Endogenous Growth” Journal of Economic Theory 67: 153-177. 1995.
 
[14]  Bekaert G., Harvey C., Lundblad R? 3Does Financial Liberalization SpurGrowth?” Journal of Financial Economics 77: 3-56.2005.
 
[15]  Bhide A, “The Hidden Costs of Stock Market Liquidity.” Journal of Financial Economics 34: 1 51. 1993.
 
[16]  Blundell, R., S. Bond, “Initial conditions and moment restrictions in dynamic panel data models.” Journal of Econometrics, 87(1), 115-143. 1998.
 
[17]  De Gregorio J., Guidotti P, “Financial development and economic growth.” World Development 23: 433-448.1995.
 
[18]  Deidda L., Fattouh B, “Banks, financial markets and growth.” Journal of Financial Intermediation 17: 6-36.2006.
 
[19]  Demetriades P., Hussein K, “Does financial development cause economic growth? Time series evidence from 16 countries.” Journal of Development Economics 51: 387-411. 1996.
 
[20]  Demirgüç-Kunt A., Maksimovic V, “Firms as Financial Intermediaries: Evidence from Trade Credit Data.” World Bank mimeo.2001.
 
[21]  Devarajan S., Swaroop V., Zou H, “The Composition of Public Expenditure and Economic Growth.” Journal of Monetary Economics 37: 318-344. 1996.
 
[22]  Easterly W., Loayza N., Montiel P, “Has Latin America‟s Post Reform Growth been Disappointing ?” Journal of International Economics 43: 287-311.1997.
 
[23]  Edison H., Levine R., Ricci L., Slok T, “International Financial Integration and Economic Growth.” Journal of International Money and Finance 21: 749-776. 2002b.
 
[24]  Edison H.J., Klein M., Ricci L., Slok T, “Capital Account Liberalization and Economic Performance: Survey and Synthesis.” IMF Working Paper 02/120.2002a.
 
[25]  Edwards S, “Openness, productivity and growth: what do we really know?” The Economic Journal 108: 383-398. 1998.
 
[26]  Edwards S, “Capital Mobility and Economic Performance: Are Emerging Economies Different?” NBER Working Papers n° 8076. 2001.
 
[27]  Fontagné L., Guérin J.L, “Innovation, imitation et rattrapage en présence de rigidités sur le marché du travail.” Revue économique 48: 1265-1290. 1997.
 
[28]  Fisman R., Love I, “Trade Credit, Financial Intermediary Development, and Industry Growth.” Journal of Finance 58: 353-374.2003.
 
[29]  Gerschenkron A, Economic Backwardness in Historical Perspective. A Book of Essays, Cambridge: Harvard University Press.1962.
 
[30]  Goldsmith R.W, “Financial Structure and Development” New Haven: Yale University Press.1969.
 
[31]  Gurley J., Shaw E, “Financial Aspects of Economic Development.” American Economic Review 45: 515-538. 1995.
 
[32]  Gourinchas, P., O. Landerretche, R. Valde´s, “Lending booms: Latin America and the world” Economia, 1: 47-100. 2001.
 
[33]  Holmstrom B., Tirole J, “Market Liquidity and Performance Monitoring” Journal of Political Economy 101: 678-709. 1993.
 
[34]  Kose, M. A., E. Prasad, K. Rogoff, S. J. Wei, “Financial Globalization: A Reappraisal” Working Paper No. 12484, National Bureau of Economic Research.2006.
 
[35]  Kindleberger C, “A financial history of Western Europe.” 2ed, New York, Oxford University Press. 1993.
 
[36]  King R.G., Levine R, “Finance; entrepreneurship and growth: Theory and evidence.” Journal of monetary Economics 32: 513-542. 1993a.
 
[37]  King R.G., Levine R, “Finance and growth: Schumpeter might be right.” Quarterly Journal of Economics 108: 717-737. 1993b.
 
[38]  King R.G., Levine R, “Financial Intermediation and Economic Development. In: Financial Intermediation in the Construction of Europe” Eds: C. Mayer and X. Vives, London: Centre for Economic Policy Research, pp. 156-189. 1993c.
 
[39]  Levine R, “Stock market, growth and tax policy” Journal of Finance 46: 1445-1465. 1991.
 
[40]  Levine, R. “Bank-based or Market-based Financial Systems: Which is Better?” Journal of Financial Intermediation, 11(4), 398-428. 2002.
 
[41]  Levine R, “Denying Foreign Bank Entry: Implications for Bank Interest Margins” In Bank Market Structure and Monetary Policy Eds: Luis Antonio Ahumada and J. Rodrigo Fuentes, Santiago, Chile: Banco Central de Chile, pp. 271-292. 2004.
 
[42]  Levine R., Loayza N., Beck T, “Financial intermediation and growth: causality and causes” Journal of Monetary Economics 46: 31-77. 2000.
 
[43]  Levine R., Renelt D, “A sensitivity analysis of gross-country growth regressions” The American Economic Review 82: 942-963. 1992.
 
[44]  Levine R., Zervos S, “Stock markets; banks; and economic growth” The American Economic Review 88: 537-588. 1998a.
 
[45]  Loayza, N.V., R. Ranciére, “Financial development, financial fragility, and growth” Journal of Money, Credit and Banking, 38(4): 1051-1076. 2006.
 
[46]  Lucas R. (1988). On the Mechanics of Economic Development. Journal of Monetary Economics 22: 3-42.1998.
 
[47]  Mayer C, “New issues in corporate finance” European Economic Review 32: 1167-1188. 1987.
 
[48]  Mc kinnon R, “Money and Capital in Economic Development” Washington, D.C: The Brookings Institution.1973.
 
[49]  Meier G., Seers D, “Pioneers in Development” Oxford University Press. 1984.
 
[50]  Nelson M., Singh R, “The Deficit-Growth Connection: Some Recent Evidence from Developing Countries” Economic Development and Cultural Change 43: 167-191. 1994.
 
[51]  Petersen M., Rajan R, “Trade Credit: Theories and Evidence” Review of Financial Studies 3: 661-691.1997.
 
[52]  Ram R, “Financial development and economic growth: Additional Evidence” Journal of Development Studies 35: 164-174.1999.
 
[53]  Rioja F., Valev N, “Finance and the Sources of Growth at Various Stages of Economic Development” Economic Inquiry 42: 27-40. 2004a.
 
[54]  Rioja F., Valev N, “Does One Size Fit All?: A Reexamination of the Finance and Growth Relationship” Journal of Development Economics, forthcoming. 2004b.
 
[55]  Robinson J, “The Generalization of the General Theory. In: the Rate of Interest and Other Essays” London: MacMillan. 1952.
 
[56]  Roodman, D, “A note on the theme of too many instruments,” Oxford Bulletin of Economics and Statistics, 71, 135-158. 2009.
 
[57]  Rousseau P.L., Wachtel P, “Equity Markets and Growth: Cross-Country Evidence on Timing and Outcomes, 1980-1995” Journal of Business and Finance 24: 1933-1957. 2000.
 
[58]  Rousseau P.L., Wachtel P, “Inflation Thresholds and the Finance-Growth Nexus” Journal of International Money and Finance 21: 777-793. 2002.
 
[59]  Schumpeter J, “Theorie des wirtschaftlichen Entwicklung, Leipzig, Dunker and Humblot.” Traduit en français: Théorie de l’Evolution Economique, Dalloz, Paris. 1912.
 
[60]  Shaw E, “Financial Deepening in Economic Development” New York: Oxford University Press. 1973.
 
[61]  Solow R, “A Contribution to the Theory of Economic Growth” Quarterly Journal of Economics 70: 65-94. 1956.
 
[62]  Zhu A., Ash M., Pollin R, “Stock Market Liquidity and Economic Growth: A Critical Appraisal of the Levine/Zervos Model” International Review of Applied Economics 18: 1-8. 2004.