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Causal Nexus between Financial Integration and Economic Growth : Does Nonlinearity Matter?

Author

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  • Saafi, Sami

    (EAS – Faculty of Economic Sciences and Management of Mahdia University of Monastir)

  • Bel Haj Mohamed, Meriem

    (EAS – Faculty of Economic Sciences and Management of Mahdia University of Monastir)

  • Ben Doudou, Makram

    (EAS – Faculty of Economic Sciences and Management of Mahdia University of Monastir)

Abstract

Empirical studies that rely on a linear framework typically fail to find evidence of a causal link between financial integration and economic growth. In this study, we extend the analysis by applying both linear and nonlinear Granger-causality tests to data for 19 emerging and developing countries. Consistent with previous research, the linear causality analysis reveals only weak causal linkages between financial integration and economic growth. In contrast, the nonlinear causality analysis provides evidence of significant nonlinear causality in 18 out of 19 countries. The growth hypothesis holds true for Argentina, Bolivia, Colombia, Morocco, Tunisia, and Venezuela whereas a reverse relation was found in Brazil, Chile, Cote d’Ivoire, Costa Rica, Ecuador, Egypt, South Korea, Malaysia, Mexico, and Paraguay. The feedback hypothesis also exists in Bolivia and Uruguay. Overall, the divergent results in the 19 countries imply that policies cannot be uniformly implemented as there would have been different effects in each country.

Suggested Citation

  • Saafi, Sami & Bel Haj Mohamed, Meriem & Ben Doudou, Makram, 2016. "Causal Nexus between Financial Integration and Economic Growth : Does Nonlinearity Matter?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 31(4), pages 817-854.
    • Handle: RePEc:ris:integr:0700
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    Citations

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    Cited by:

    1. Lamissa Barro & Boubié Toussaint Bassolet, 2023. "Effects of International Financial Integration on Economic Growth in Developing Countries: Heterogeneous Panel Evidence from Seven West African Countries," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 70(1), pages 83-96, March.
    2. Benjamin U. Onah, 2022. "Financial Integration and Economic Performance: Comparative Evidence from SADC and ECOWAS Regions," The American Economist, Sage Publications, vol. 67(2), pages 226-240, October.
    3. Sami Saafi & Meriem Bel Haj Mohamed & Abdeljelil Farhat, 2017. "Untangling the causal relationship between tax burden distribution and economic growth in 23 OECD countries: Fresh evidence from linear and non-linear Granger causality," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 14(2), pages 265-301, December.
    4. Prats Albentosa, María Asuncíon & Sandoval, Beatriz, 2020. "Does stock market capitalization cause GDP? A causality study for Central and Eastern European countries?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 14, pages 1-29.
    5. Ehigiamusoe, Kizito Uyi & Lean, Hooi Hooi, 2019. "Do economic and financial integration stimulate economic growth? A critical survey," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-27.
    6. Selvarajan, Sonia Kumari & Ab-Rahim, Rossazana, 2020. "Financial Integration and Economic Growth: Should Asia Emulate Europe?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 35(1), pages 191-213.
    7. Eslamloueyan, Karim & Fatemifar, Neda, 2021. "Does deeper financial integration lead to macroeconomic and financial instability in Asia?," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 437-451.
    8. Robert Akunga & Ahmad Hassan Ahmad & Simeon Coleman, 2023. "Financial market integration in sub‐Saharan Africa: How important is contagion?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3637-3653, October.

    More about this item

    Keywords

    Financial Integration; Economic Growth; Nonlinear Granger Causality; Developing Countries; Emerging Economies;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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