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Financial sector development and growth in small open economies

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  • Sunday Iyare
  • Winston Moore

Abstract

This article investigates the Granger causal relationship between financial development and economic growth for four small open economies over the period 1960 to 2003. Both long- and short-run Granger causality tests are used to assess the finance-growth nexus. The results suggest that there is a positive association between financial development and growth in all countries. However, the long-run causality tests show that growth tends to lead financial development in Singapore and Jamaica, financial development leads growth in Trinidad and Tobago and there is a bidirectional link in Barbados. These results therefore suggest that cross-country studies could overstate the impact of financial development on growth, since they ignore differences - even in relatively homogenous groups.

Suggested Citation

  • Sunday Iyare & Winston Moore, 2011. "Financial sector development and growth in small open economies," Applied Economics, Taylor & Francis Journals, vol. 43(10), pages 1289-1297.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:10:p:1289-1297
    DOI: 10.1080/00036840802600350
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    References listed on IDEAS

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    1. Abu-Bader, Suleiman & Abu-Qarn, Aamer, 2005. "Financial Development and Economic Growth: Time Series Evidence from Egypt," MPRA Paper 1113, University Library of Munich, Germany.
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    2. Mikhail Stolbov, 2017. "Causality between credit depth and economic growth: evidence from 24 OECD countries," Empirical Economics, Springer, vol. 53(2), pages 493-524, September.
    3. Morgan, Horatio M., 2013. "Financial Development and Economic Growth: New Lessons from Small Open Economies," MPRA Paper 49842, University Library of Munich, Germany.
    4. repec:zbw:bofitp:urn:nbn:fi:bof-201505061169 is not listed on IDEAS
    5. Mohammed Ziaur Rehman & Nasir Ali & Najeeb Muhammad Nasir, 2015. "Financial Development, Savings and Economic Growth: Evidence from Bahrain Using VAR," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 6(2), pages 112-123, April.
    6. Sayef Bakari & Sofien Tiba, 2019. "The Impact of Trade Openness, Foreign Direct Investment and Domestic Investment on Economic Growth: New Evidence from Asian Developing Countries," Economic Research Guardian, Weissberg Publishing, vol. 9(1), pages 46-54, June.
    7. Mikhail Stolbov, 2017. "Causality between credit depth and economic growth: evidence from 24 OECD countries," Empirical Economics, Springer, vol. 53(2), pages 493-524, September.
    8. Shu-Rui Hu & Ren-Ai Jiang & Zhe-Yuan Lu & Xiao-Xue Yin, 2024. "Does the Opening of High-Speed Rail Change Urban Financial Agglomeration?," Sustainability, MDPI, vol. 16(11), pages 1-23, May.
    9. Mingyong Hong & Mengjie Tian & Ji Wang, 2022. "Digital Inclusive Finance, Agricultural Industrial Structure Optimization and Agricultural Green Total Factor Productivity," Sustainability, MDPI, vol. 14(18), pages 1-18, September.
    10. repec:bof:bofitp:urn:nbn:fi:bof-201505061169 is not listed on IDEAS

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