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Financial Development and Economic Growth: Evidence from a Panel Study on South Asian Countries

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  • Rezwanul Hasan Rana
  • Suborna Barua

Abstract

The paper examines the relationship between financial development and economic growth using panel data for five emerging South Asian countries - Bangladesh, India, Nepal, Pakistan and Sri Lanka. The heterogeneous panel data is collected from the World Bank for the period of 1974 to 2012. Economic Growth is represented by GDP growth rate, and for Financial Development, five major variables have been used: (i) Domestic Credit Provided by Financial Sector, (ii) Total Debt Services, (iii) Gross Domestic Savings, (iv) Broad Money, and (v) Trade Balance. Fixed Effect Panel regression model has been used and Time Fixed Effect, Cross Sectional Dependence, Heteroskedasticity, Serial Correlation and Cointegration have been tested for model fitness. The results indicate that growth of total debt services and domestic savings have significant impact on economic development of these countries. Interestingly, broad money, trade balance and domestic credit have no considerable influence on fostering economic growth which is generally unexpected. The paper places several arguments to explain these results. The study appears to be a first hand examination on the South Asian countries and adds new insight into the existing literature. The findings and discussions presented would be valuable in designing long term financial and macroeconomic policies by these countries.

Suggested Citation

  • Rezwanul Hasan Rana & Suborna Barua, 2015. "Financial Development and Economic Growth: Evidence from a Panel Study on South Asian Countries," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(10), pages 1159-1173.
    • Handle: RePEc:asi:aeafrj:v:5:y:2015:i:10:p:1159-1173:id:1431
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    Cited by:

    1. Li, Aimin & Zhou, Shuyu, 2024. "Role of mineral-based industrialization in promoting economic growth: Implications for achieving environmental sustainability through financial management," Resources Policy, Elsevier, vol. 92(C).
    2. D. O. Olayungbo & Ahmod Quadri, 2019. "Remittances, financial development and economic growth in sub-Saharan African countries: evidence from a PMG-ARDL approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-25, December.
    3. Cristian Valeriu Paun & Radu Cristian Musetescu & Vladimir Mihai Topan & Dan Constantin Danuletiu, 2019. "The Impact of Financial Sector Development and Sophistication on Sustainable Economic Growth," Sustainability, MDPI, vol. 11(6), pages 1-21, March.
    4. Farroukh, Arafet & Mazioued, Manel & Pédussel Wu, Jennifer, 2024. "Revisiting the linkage between remittances inflow and economic growth: A semi-parametric estimation with panel data," IPE Working Papers 238/2024, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    5. Md. Qamruzzaman & Wei Jianguo & Sharmin Jahan & Zhu Yingjun, 2021. "Financial innovation, human capital development, and economic growth of selected South Asian countries: An application of ARDL approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4032-4053, July.
    6. Md. Qamruzzaman & Wei Jianguo, 2017. "Financial innovation and economic growth in Bangladesh," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 3(1), pages 1-24, December.
    7. Hui Wang & Huifang Liu, 2017. "An Empirical Research of FDI Spillovers and Financial Development Threshold Effects in Different Regions of China," Sustainability, MDPI, vol. 9(6), pages 1-21, June.
    8. Cher Chen & GholamReza Zandi Pour & Edwin R. de los Reyes, 2020. "Financial Development and Economic Growth in Asian Countries: A Panel Empirical Investigation," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 6(2), pages 76-84.
    9. Md. Qamruzzaman & Jianguo Wei, 2018. "Financial Innovation, Stock Market Development, and Economic Growth: An Application of ARDL Model," IJFS, MDPI, vol. 6(3), pages 1-30, August.
    10. Sudip Patra & Sayantan Ghosh Dastidar, 2018. "Finance and Growth: Evidence from South Asia," Jindal Journal of Business Research, , vol. 7(1), pages 37-60, June.
    11. Agne Setikiene & Mindaugas Butkus, 2021. "The Heterogeneous Impact of Financialisation on Economic Growth in the Long Run," JRFM, MDPI, vol. 14(5), pages 1-30, May.

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