Year: 2014
Type: dissertation
Abstract: Using 1980 - 2012 annual data, the study empirically investigates the dynamic \nrelationship between financial development and economic growth in three \ndeveloping countries (South Africa, Brazil and Kenya) and three developed countries \n(United States of America, United Kingdom and Australia). The study was motivated \nby the current debate regarding the role of financial development in the economic \ngrowth process, and their causal relationship. The debate centres on whether \nfinancial development impacts positively or negatively on economic growth and \nwhether it Granger-causes economic growth or vice versa. To this end, two models \nhave been used. In Model 1 the impact of bank- and market-based financial \ndevelopment on economic growth is examined, while in Model 2 it is the causality \nbetween the two that is explored. Using the autoregressive distributed lag (ARDL) \nbounds testing approach to cointegration and error-correction based causality test, \nthe results were found to differ from country to country and over time. These results \nwere also found to be sensitive to the financial development proxy used. Based on \nModel 1, the study found that the impact of bank-based financial development on \neconomic growth is positive in South Africa and the USA, but negative in the U.K – \nand neither positive nor negative in Kenya. Elsewhere the results were inconclusive. \nMarket-based financial development was found to impact positively in Kenya, USA \nand the UK but not in the remaining countries. Based on Model 2, the study found \nthat bank-based financial development Granger-causes economic growth in the UK, \nwhile in Brazil they Granger-cause each other. However, in South Africa, Kenya and \nUSA no causal relationship was found. In Australia the results were inconclusive. \nThe study also found that in the short run, market-based financial development \nGranger-causes economic growth in the USA but that in South Africa and Brazil, the \nreverse applies. On the other hand bidirectional causality was found to prevail in \nKenya in the same period.
Author: Sheilla Nyasha
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1501290237