Year: 2015
Type: dissertation
Abstract: This thesis is based on three empirical essays in financial development and economic growth.The first essay, investigated in the third chapter, the effect of financial development on economic growth in the context of Saudi Arabia, an oil-rich economy.In doing so, the study distinguishes between the effects of financial development on the oil and non-oil sectors of the economy.The Autoregressive Distributed Lag (ARDL) bounds test methodology is applied to yearly data over the period 1968 to 2010.The finding of this study is that financial development has a positive impact on the growth of the non-oil sector.In contrast, its impact on the oilsector growth and total GDP growth is either negative or insignificant.This suggests that the relationship between financial development and growth may be fundamentally different in resource-dominated economies.The second essay revisited, in the fourth chapter, the relationship between financial development and economic growth in a panel of 52 middle-income countries over the 1980-2008 period.Using pooled mean group estimations in a dynamic heterogeneous panel setting, we show that there is an inverted U-shaped relationship between finance and growth in the long-run.In the short run, the relationship is insignificant.This suggests that too much finance can exert a negative influence on growth in middleincome countries.The finding of a non-monotonic effect of financial development on growth is confirmed by estimating a dynamic panel threshold model.The third essay empirically explores cross-country evidence of the effects of financial development shocks on economic growth.It employs a Global Vector Autoregressive (GVAR) model, which allows us to capture the dynamics of this relationship in a multi-country setting, and connects countries through bilateral empirical predictions.In addition, the oil price has a positive and significant impact on overall GDP growth but an insignificant impact on the non-oil sector in the long-run.Financial development has a negative but insignificant impact on economic growth, indicating that the Saudi economy has not benefitted from financial development.This finding can be explained by two prime views: a theoretical view and a pragmatic view.According to all financial development theories, the measures of financial development adopted in this study should have a positive and significant impact on economic growth.However, it is difficult to comprehend which growth theory fits in with the features of the Saudi economy.The economy of Saudi Arabia is characterized by high resource abundance, where the state takes major economic decisions.Though, due to a high oil rent, although the per capita income is moderately high, the economy does experience high unemployment.Therefore, this economic scenario can be explained partially by the Keynesian school of thought.However, this thought is worthless due to the violation of the strong assumption ofthe speculative motive of economic which occurs due to asymmetric information and underdeveloped capital market.Thus, private sector becomes unable to flourish due to the lack of credit availability in the money and capital market.Moreover, Neoclassical thought also unable to explain the findings as it assumes to operate capital market incurs no cost and it operates perfectly.According to the exogenous growth theory, capital accumulation takes place due to higher saving ratio, changes of which can give only temporary boost to economic growth.However, in order to attain a higher long run growth, an economy requires continuous technological progress.Endogenous growth theory argues that human capital and institutions spur technical innovation and enhance living standards.In the context of the Saudi economy, poor financial market hinders the savings to be channelled to investment process to increase capital-labour ratio.Endogenous growth theory further Eq Eq ARGENTINA -2.27 -3.31 -2.13 -7.23 -0.13 -4.63 0.39 3.93 -0.79 -3.96 AUSTRALIA -2.08 -5.41 -2.50 -3.61 -1.66 -2.60 -2.17 -7.16 -2.76 -6.11 AUSTRIA -2.25 -3.48 -1.15 -4.06 -1.84 -5.84 -----2.40-6.58 BELGIUM -1.03 -5.38 -1.67 -5.57-0.22 -3.83
Author: Nahla Samargandi
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1737668427