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Asymmetry of Information and the Finance-Growth Nexus in Emerging Markets: Empirical Evidence Using Panel VECM Analysis

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  • Sisira R. N. Colombage
  • Abdel K. Halabi

    (Monash University, Australia
    The University of the Witwatersrand, South Africa,
    Monash University, Australia)

Abstract

This paper tests both the short and long term relationship between the real GDP, the equity amounts outstanding, the corporate bond amounts outstanding and bank credit to the private sector for five emerging markets. In particular, the finance-growth nexus is analysed with data collected from China, Indonesia, the Philippines, South Korea and Thailand between 1994 and 2009 using panel VECM analysis. The cointegration technique is then used to examine the long run behavior based on the assumption that all the variables involved have the same degree of integration and the error correction model (ECM) and the Wald test are employed to determine the direction of causality. The empirical results suggest the existence of a stable relationship in the direction from economic growth to financial market development that is consistent with the information asymmetry arguments for emerging markets. The findings have implications for financial and economic policy makers and enable these stakeholders to determine which sectors should be encouraged to achieve overall economic growth and development. The results are also useful to investors as they show the level of the intensity of information asymmetry on which these relationships might vary in both the short and long run.

Suggested Citation

  • Sisira R. N. Colombage & Abdel K. Halabi, 2012. "Asymmetry of Information and the Finance-Growth Nexus in Emerging Markets: Empirical Evidence Using Panel VECM Analysis," Journal of Developing Areas, Tennessee State University, College of Business, vol. 46(1), pages 133-146, January-J.
    • Handle: RePEc:jda:journl:vol.46:year:2012:issue1:pp:133-146
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    Citations

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    Cited by:

    1. Samuel Antwi & Prince Yeboah Boateng & Awudu Salley, 2021. "?he effect of foreign direct investment on economic growth in Ghana: the role of exchange rate volatility," Bulletin of Applied Economics, Risk Market Journals, vol. 8(1), pages 81-96.
    2. Eglantina Hysa & Naqeeb Ur Rehman, 2023. "Economic Growth Through Financial Development: Empirical Evidences from New Member States and Western Balkan Countries," Springer Proceedings in Business and Economics, in: Luminita Chivu & Ignacio De Los Ríos Carmenado & Jean Vasile Andrei (ed.), Crisis after the Crisis: Economic Development in the New Normal, chapter 0, pages 49-67, Springer.

    More about this item

    Keywords

    Asymmetry of Information; Finance-Growth Nexus; Emerging Markets;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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