Year: 2010
Type: dissertation
Abstract: This study examines empirically the potential causal link between financial development \nand output growth in each of sixteen countries that have experienced sustained economic \ngrowth in the postwar period within a multivariate vector autoregressive (VAR) \nframework. I use three time series methodologies such as usual Granger causality \napproach, modified causality test of Toda and Yamamoto (1995) and variance \ndecompositions to examine interrelationships between variables in the VAR system for \nthe same data set. I find mixed results on the direction of causality and the results vary \nwith respect to the type of test employed. Using annual time series data from 1960 to \n2004 and a Granger causality approach, I find no evidence of causality in either direction \nin twelve countries, bi-directional causality in two countries, one-way causality from \ngrowth to finance in two countries and no one-way causality from finance to growth for \nany of the countries examined. Although the results are somewhat sensitive to the type of \ncausality tests employed, the general conclusion is that financial development and output \ngrowth are causally independent at annual frequencies. This casts doubts on claims that \nfinancial development leads output growth. Therefore, more empirical studies and the \nneed for broadening the econometric approach are called for before making any general \nconclusion about this relationship.
Author: Ramesh Adhikari
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1167314841