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Financial Development and Economic Growth: Some Caribbean Empirical Evidence

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  • Edward E Ghartey

    (University of the West Indies)

Abstract

The paper examines the role of financial development and economic growth in Barbados, Jamaica and Trinidad and Tobago. Causality tests conducted by using the stepwise Granger causality method, after addressing respective unknown exogenous structural changes, and using bounds testing approach to determine the level relationships between economic growth and each respective real financial development proxies, produced more robust results. Thus, economic growth drives real financial development in the short-run in all three countries, with Trinidad-Tobago¡¯s results being overwhelming. Long-run weak exogeneity tests from respective factor loadings indicate similar demand-following phenomenon in Jamaica, although results are mixed in Barbados and Trinidad-Tobago. Policymakers are therefore advised to make the overall economic growth of Jamaica their policy priority, and not favor its financial market with special policies over both near term and long-run. Similar policy is strongly recommended for both Trinidad-Tobago and Barbados. However, in Barbados and Trinidad-Tobago, mixed Granger causal relationship results suggest that extending resources as incentives to boost up both financial market development and economic growth will benefit them over the long-run.

Suggested Citation

  • Edward E Ghartey, 2018. "Financial Development and Economic Growth: Some Caribbean Empirical Evidence," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 43(1), pages 49-76, March.
    • Handle: RePEc:jed:journl:v:43:y:2018:i:1:p:49-76
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    2. Hajilee, Massomeh & Stringer, Donna Y. & Hayes, Linda A., 2021. "On the link between the shadow economy and stock market development: An asymmetry analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 303-316.

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    More about this item

    Keywords

    Financial Market; Stock Market; Economic Growth; Bounds Test; Granger Causality; Long-Run Weak Exogeneity;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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