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The Finance-growth Relationship and the Level of Country Development

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  • Su-Yin Cheng
  • Chia-Cheng Ho
  • Han Hou

Abstract

We examine whether dynamic impacts of banks and stock markets on economic growth are related to the level of country development. Using annual data from 15 industrial and 15 emerging countries over the period from 1976 to 2005, we find that banking development and stock market development may have distinct short-and long-run impacts on economic growth at various stages of country development. Financial development is not always a panacea for economic growth. Most importantly, our findings suggest that the fully functional tools to render stable growth for a country may depend on the level of the country’s development. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Su-Yin Cheng & Chia-Cheng Ho & Han Hou, 2014. "The Finance-growth Relationship and the Level of Country Development," Journal of Financial Services Research, Springer;Western Finance Association, vol. 45(1), pages 117-140, February.
    • Handle: RePEc:kap:jfsres:v:45:y:2014:i:1:p:117-140
    DOI: 10.1007/s10693-012-0153-z
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    5. Guangdong Xu, 2022. "From financial structure to economic growth: Theory, evidence and challenges," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 51(1), February.
    6. Hou, Han & Cheng, Su-Yin, 2017. "The dynamic effects of banking, life insurance, and stock markets on economic growth," Japan and the World Economy, Elsevier, vol. 41(C), pages 87-98.
    7. 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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    More about this item

    Keywords

    Financial development; Stock markets; Economic growth; Pooled mean group estimator; Panel data; C33; F30; G21; G28; O16; O40;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F30 - International Economics - - International Finance - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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