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on Financial Development and Growth |
| By: | Diego Ivan Ruge Leiva; Giuseppe Caivano |
| Abstract: | Although a great deal of research has shown how stock markets and banks may relate to economic growth, such studies ignore the role that common shocks play in the finance-growth nexus. Using panels of 54 advanced and emerging economies, and novel common factor frameworks which account for dynamics, reverse causality, observed heterogeneities, and unobserved common shocks which cause error cross-sectional dependencies across countries, we find that stock market development has positive long-term effects on economic growth, while high levels of banking development might be detrimental to overall output. These results also hold for a subsample of advanced countries; however, despite the positive and significant effect that stock market development has on growth for a subsample of emerging countries, the negative effect of bank development is as likely to be significant as insignificant in this case. Moreover, we find that ignoring the strong error cross-sectional dependencies caused by common shocks and/or assuming homogeneous coefficients may yield inconsistent estimates. |
| Keywords: | Economic Growth, Stock Market Development, Banking Development, Cross-Section Dependence, Multifactor Error Structure. |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:uae:wpaper:0317&r=fdg |
| By: | Diego Ivan Ruge Leiva; Giuseppe Caivano |
| Abstract: | This is an supplement to the paper by Ruge-Leiva and Caivano (2017) “Stock Markets, Banks and Economic Growth in a Context of Common Shocks and Cross-Country Dependencies”, which provides additional findings and figures, unit root test results, cross-section dependence test results, tables of data collection and additional descriptive statistics. |
| Keywords: | Economic Growth, Stock Market Development, Banking Development, Cross-Section Dependence, Multifactor Error Structure. |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:uae:wpaper:0417&r=fdg |
| By: | Michael Stemmer (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This article provides new evidence on the relationship between financial development and economic growth in 15 Eastern European countries between 1994 and 2014. The analysis employs a panel Granger causality framework that is based on seemingly unrelated regression systems and Wald tests with country-specific bootstrap critical values. By relying on several financial development indicators, we find that finance primarily follows GDP per capita in transition economies, supporting a demand-driven hypothesis. In contrast, financial development in the form of financial monetization and credit extension exerts in the majority of countries a negative impact on economic growth. Moreover, a strong foreign bank presence seems to positively impact growth, presumably driven by more efficiency and prudential lending behavior. |
| Keywords: | Economic growth,financial development,transition countries,granger causality,bootstrap |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01524462&r=fdg |