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Economic growth and market-based financial systems: a review

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  • Sheilla Nyasha
  • N.M. Odhiambo

Abstract

Purpose - – This paper aims to survey the existing literature on the causal relationship between market-based financial development and economic growth – in both developed and developing countries, highlighting the theoretical and the empirical evidence. Design/methodology/approach - – The paper divides financial development into bank-based and market-based financial development, and it closely reviews the international literature on the relationship between market-based financial development and economic growth. Findings - – The direction of causality between market-based financial development and economic growth varies from one country to another, depending on various country-specific characteristics, data sets and the methodology used by the researcher. On balance, there is predominant support for the supply-leading response, where the development of the market-based financial sector is expected to precede the development of the real sector. Originality/value - – This review differs fundamentally from previous reviews, in that it divides financial development into bank-based and market-based financial development, and it focuses closely on market-based financial development and economic growth. The majority of the previous studies on this subject failed to make such a distinction, thereby focusing mainly on the general causal relationship between the overall financial development and economic growth. To the best of the authors' knowledge, this may be the first review of its kind to survey the existing research in detail on the causal relationship between market-based financial development and economic growth, in both developed and developing countries.

Suggested Citation

  • Sheilla Nyasha & N.M. Odhiambo, 2015. "Economic growth and market-based financial systems: a review," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 32(2), pages 235-255, June.
    • Handle: RePEc:eme:sefpps:v:32:y:2015:i:2:p:235-255
    DOI: 10.1108/SEF-03-2014-0053
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    Citations

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    Cited by:

    1. Sheilla Nyasha & Nicholas M. Odhiambo & Mercy T. Musakwa, 2021. "The Impact of Stock Market Development on Unemployment: Empirical Evidence from South Africa," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 71(1-2), pages 92-110, January-J.
    2. Chu, Amanda M.Y. & Lv, Zhihui & Wagner, Niklas F. & Wong, Wing-Keung, 2020. "Linear and nonlinear growth determinants: The case of Mongolia and its connection to China," Emerging Markets Review, Elsevier, vol. 43(C).
    3. Jonathan A. Batten & Xuan Vinh Vo, 2016. "Bank risk shifting and diversification in an emerging market," Risk Management, Palgrave Macmillan, vol. 18(4), pages 217-235, December.
    4. Edward Alabie Borteye & Williams Kwasi Peprah, 2022. "Correlates of Stock Market Development and Economic Growth: A Confirmatory Study from Ghana," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(3), pages 1-1, February.
    5. Muyambiri, Brian & Odhiambo, Nicholas Mbaya, 2017. "Investment dynamics in Mauritius: Does financial development matter?," Working Papers 22077, University of South Africa, Department of Economics.
    6. Mohammad Enamul Hoque & Noor Azuddin Yakob, 2017. "Revisiting stock market development and economic growth nexus: The moderating role of foreign capital inflows and exchange rates," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1329975-132, January.
    7. Oyebola Fatima Etudaiye-Muhtar & Rubi Ahmad & Taiwo Azeez Olaniyi & Bilqees Ayoola Abdulmumin, 2017. "Financial Market Development and Bank Capitalization Ratio," Paradigm, , vol. 21(2), pages 126-138, December.
    8. Sunde, Tafirenyika, 2018. "Revisiting the Environmental Kuznets Curve and the Role of Energy Consumption: The Case of Namibia," MPRA Paper 86507, University Library of Munich, Germany.
    9. Ghulam Mujtaba Chaudhary & Zaheer Abbas & Jamshed Khurshid Meer, 2018. "Comparative Analysis Of Financial Systems In Context Of Global Financial Crisis," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 14(1), pages 95-109.
    10. Roxana Maria Bădîrcea & Nicoleta Mihaela Florea & Alina Georgiana Manta & Silvia Puiu & Marius Dalian Doran, 2020. "Comparison between Romania and Sweden Based on Three Dimensions: Environmental Performance, Green Taxation and Economic Growth," Sustainability, MDPI, vol. 12(9), pages 1-17, May.
    11. Ghulam Mujtaba Chaudhary & Zaheer Abbas & Jamshed Khurshid Meer, 2018. "Comparative Analysis Of Financial Systems In Context Of Global Financial Crisis," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 14(1), pages 14-18.

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