Puzzles in the relationship between financial development and economic growth.

Ghimire, Binam; Giorgioni, Gianluigi

Abstract

This paper provides evidence in support of two important puzzles regarding the relationship of financial development and economic growth documented in a number of recent papers. The first puzzle relates to the finding that banks have a positive effect upon economic growth, when data are averaged, but a negative one when the highest annual frequency is used. The second is about the positive effect of stock markets upon economic growth irrespective of the averaging. On the first puzzle, although our results provide further empirical support to a negative effect of banks' development upon economic growth in the short run (annual data), they do not provide the expected evidence of a strong positive relationship for the long-run. On the second puzzle related to the impact of stock markets upon economic growth, we find that the sign of the relationship strongly depends on the variables chosen, the method of estimation and the possible role of self-selection bias. This paper uses recent developments in panel data analysis, including panel unit root tests for a sample of 120 countries for 37 years.

Citation

GHIMIRE, B. and GIORGIONI, G. 2013. Puzzles in the relationship between financial development and economic growth. Journal of applied finance and banking [online], 3(5), pages 199-222. Available from: https://www.scienpress.com/journal_focus.asp?main_id=56&Sub_id=IV&Issue=841

• Journal Article Type: Article
• Acceptance Date: May 24, 2013
• Online Publication Date: Sep 1, 2013
• Publication Date: Oct 31, 2013
• Deposit Date: Aug 20, 2024
• Publicly Available Date: Aug 20, 2024
• Journal: Journal of applied finance and banking
• Print ISSN: 1792-6580
• Electronic ISSN: 1792-6599
• Publisher: Scienpress
• Peer Reviewed: Peer Reviewed
• Volume: 3
• Issue: 5
• Pages: 199-222
• Keywords: Financial development; Economic growth; Banks; Stock markets
• Public URL: https://rgu-repository.worktribe.com/output/2439597
• Publisher URL: https://www.scienpress.com/journal_focus.asp?main_id=56&Sub_id=IV&Issue=841
• Related Public URLs: https://rgu-repository.worktribe.com/output/2440342 (Presentation); https://rgu-repository.worktribe.com/output/2440333 (Poster)