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Is the finance led growth hypothesis robust to alternative measures of financial development?

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  • Rumi Masih
  • Suhair Khan

Abstract

In this article we employ tests of noncausation to measure the impact of financial development on 34 developing countries experiencing vastly different stages of economic development and covering annual observations over the period 1960-2009 for most countries. Focusing on the dual role of financial development and economic growth as proposed in much of the endogenous growth literature, we draw upon individual country evidence from 34 developing countries at alternative stages of economic development. Our contribution to the literature lies in our use of several tests based on multiple measures selected to represent financial development. Testing each one separately, we come up with varying patterns of correlation between finance and growth for individual countries. The variation or consistency of each measure as an influence on economic growth is both telling for policy and the determination of future patterns of growth for emerging market economies.

Suggested Citation

  • Rumi Masih & Suhair Khan, 2011. "Is the finance led growth hypothesis robust to alternative measures of financial development?," Applied Financial Economics, Taylor & Francis Journals, vol. 21(9), pages 601-623.
    • Handle: RePEc:taf:apfiec:v:21:y:2011:i:9:p:601-623
    DOI: 10.1080/09603107.2010.534065
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    References listed on IDEAS

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    1. Gelb, Alan H., 1989. "Financial policies, growth, and efficiency," Policy Research Working Paper Series 202, The World Bank.
    2. Johansen, Soren & Juselius, Katarina, 1994. "Identification of the long-run and the short-run structure an application to the ISLM model," Journal of Econometrics, Elsevier, vol. 63(1), pages 7-36, July.
    3. Swanson, N.R. & Ozyildirim, A. & Pisu, M., 1996. "A Comparison of Alternatove causality and Predictive Accuracy Tests in the presence of Integrated and Co-integrated Economic Variables," Papers 4-96-4, Pennsylvania State - Department of Economics.
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    Cited by:

    1. Alessandra Cepparulo & Juan Carlos Cuestas & Maurizio Intartaglia, 2017. "Financial development, institutions, and poverty alleviation: an empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 49(36), pages 3611-3622, August.
    2. Maruta, Admasu Asfaw, 2019. "Can aid for financial sector buy financial development?," Journal of Macroeconomics, Elsevier, vol. 62(C).
    3. Setareh Katircioglu & Salih Katircioglu & Farid Irani, 2023. "Links between growth, trade and financial openness in South Africa: An empirical investigation," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4324-4330, October.

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