IDEAS home Printed from https://ideas.repec.org/a/vrs/aicuec/v65y2018i3p247-268n6.html
   My bibliography  Save this article

Finance-Growth Nexus Revisited: Empirical Evidence from Six Countries

Author

Listed:
  • Nyasha Sheilla

    (Department of Economics, University of South Africa, South Africa)

  • Odhiambo Nicholas M.

    (Department of Economics, University of South Africa, South Africa)

Abstract

This paper investigates the dynamic causal relationship between bank-based financial development and economic growth, and between market-based financial development and economic growth in six countries during the period from 1980 to 2012. The causal relationship was found to vary largely across countries and over time. In general, bank-based financial development seems to Granger-cause economic growth in the UK and only in the long run in Australia. However, there is a feedback loop in Brazil and Australia, but only in the short run for the latter. In Kenya, South Africa and USA, the results support the neutrality hypothesis. The study results further indicate short-run unidirectional causality from market-based financial development to economic growth in the USA. Evidence of the feedback loop was found in Kenya, while the demand-following hypothesis found support only in South Africa and Brazil. However, the neutrality view was supported in Australia and the UK.

Suggested Citation

  • Nyasha Sheilla & Odhiambo Nicholas M., 2018. "Finance-Growth Nexus Revisited: Empirical Evidence from Six Countries," Scientific Annals of Economics and Business, Sciendo, vol. 65(3), pages 247-268, September.
    • Handle: RePEc:vrs:aicuec:v:65:y:2018:i:3:p:247-268:n:6
    DOI: 10.2478/saeb-2018-0021
    as

    Download full text from publisher

    File URL: https://doi.org/10.2478/saeb-2018-0021
    Download Restriction: no
    File URL: https://libkey.io/10.2478/saeb-2018-0021?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Suleiman Abu‐Bader & Aamer S. Abu‐Qarn, 2008. "Financial Development and Economic Growth: Empirical Evidence from Six MENA Countries," Review of Development Economics, Wiley Blackwell, vol. 12(4), pages 803-817, November.
    3. Narayan, Paresh Kumar & Smyth, Russell, 2008. "Energy consumption and real GDP in G7 countries: New evidence from panel cointegration with structural breaks," Energy Economics, Elsevier, vol. 30(5), pages 2331-2341, September.
    4. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    5. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    6. Cheng, Su-Yin, 2012. "Substitution or complementary effects between banking and stock markets: Evidence from financial openness in Taiwan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(3), pages 508-520.
    7. Marques, Luís Miguel & Fuinhas, José Alberto & Marques, António Cardoso, 2013. "Does the stock market cause economic growth? Portuguese evidence of economic regime change," Economic Modelling, Elsevier, vol. 32(C), pages 316-324.
    8. repec:bla:reviec:v:9:y:2001:i:3:p:443-54 is not listed on IDEAS
    9. World Bank, 2007. "Brazil : The Industry Structure of Banking Services," World Bank Publications - Reports 7668, The World Bank Group.
    10. Jordan Shan & Jianhong Qi, 2006. "Does Financial Development 'Lead' Economic Growth? The Case of China," Annals of Economics and Finance, Society for AEF, vol. 7(1), pages 197-216, May.
    11. Arestis, Philip & Demetriades, Panicos O, 1997. "Financial Development and Economic Growth: Assessing the Evidence," Economic Journal, Royal Economic Society, vol. 107(442), pages 783-799, May.
    12. Christopoulos, Dimitris K. & Tsionas, Efthymios G., 2004. "Financial development and economic growth: evidence from panel unit root and cointegration tests," Journal of Development Economics, Elsevier, vol. 73(1), pages 55-74, February.
    13. Jung, Woo S, 1986. "Financial Development and Economic Growth: International Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 34(2), pages 333-346, January.
    14. Graff, Michael, 1999. "Financial development and economic growth: A new empirical analysis," Dresden Discussion Paper Series in Economics 05/99, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    15. Ang, James B. & McKibbin, Warwick J., 2007. "Financial liberalization, financial sector development and growth: Evidence from Malaysia," Journal of Development Economics, Elsevier, vol. 84(1), pages 215-233, September.
    16. Anthony Enisan Akinlo & Tajudeen Egbetunde, 2010. "Financial Development and Economic Growth: The Experience of 10 Sub-Saharan African Countries Revisited," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 2(1), pages 017-028, June.
    17. Enisan, Akinlo A. & Olufisayo, Akinlo O., 2009. "Stock market development and economic growth: Evidence from seven sub-Sahara African countries," Journal of Economics and Business, Elsevier, vol. 61(2), pages 162-171.
    18. M Arayssi & A Fakih, 2017. "The Finance-Growth Nexus, again: New Evidence from Kenya," Economic Issues Journal Articles, Economic Issues, vol. 22(2), pages 33-59, September.
    19. Nicholas Odhiambo, 2009. "Interest Rate Liberalization and Economic Growth in Zambia: A Dynamic Linkage," African Development Review, African Development Bank, vol. 21(3), pages 541-557.
    20. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
    21. Odhiambo, Nicholas M., 2010. "Energy consumption, prices and economic growth in three SSA countries: A comparative study," Energy Policy, Elsevier, vol. 38(5), pages 2463-2469, May.
    22. Abu-Bader, Suleiman & Abu-Qarn, Aamer S., 2008. "Financial development and economic growth: The Egyptian experience," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 887-898.
    23. Yilmaz Bayar & Abdulkadir Kaya & Murat Yildirim, 2014. "Effects of Stock Market Development on Economic Growth: Evidence from Turkey," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(1), pages 93-100, January.
    24. Sinha, Dipendra & Macri, Joseph, 2001. "Development and Economic Growth: The Case of Eight Asian Countries," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 54(2), pages 219-234.
    25. Sinha, Dipendra & Macri, Joseph, 2001. "Financial development and economic growth: The case of eight Asian countries," MPRA Paper 18297, University Library of Munich, Germany.
    26. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Manuel Ennes Ferreira & Jelson Serafim & João Dias, 2022. "Finance-Growth Nexus: Evidence from Angola," Working Papers REM 2022/0227, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    2. Sheilla Nyasha & Nicholas M. Odhiambo & Mercy T. Musakwa, 2021. "The Impact of Stock Market Development on Unemployment: Empirical Evidence from South Africa," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 71(1-2), pages 92-110, January-J.
    3. Nyasha, Sheilla & Odhiambo, Nicholas M, 2019. "Does remittance inflow granger-cause economic growth in South Africa? A dynamic multivariate causality test," Working Papers 25743, University of South Africa, Department of Economics.
    4. Sheilla Nyasha & Nicholas M. Odhiambo & Mercy T. Musakwa, 2021. "The Impact of Stock Market Development on Unemployment: Empirical Evidence from South Africa," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 71(1-2), pages 92-110, January-J.
    5. S. Nyasha & N.M. Odhiambo & M.T. Musakwa, 2021. "The Impact of Stock Market Development on Unemployment: Empirical Evidence from South Africa," Working Papers AESRI-2021-17, African Economic and Social Research Institute (AESRI), revised Jul 2021.
    6. Nicholas M. Odhiambo & Sheilla Nyasha, 2022. "Financial Development and Economic Growth in Uganda: A Multivariate Causal Linkage," Journal of African Business, Taylor & Francis Journals, vol. 23(2), pages 361-379, April.
    7. Diby Francois Kassi & Yao Li & Zhankui Dong, 2023. "The mitigating effect of governance quality on the finance‐renewable energy‐growth nexus: Some international evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 316-354, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nyasha, Sheilla & Odhiambo, Nicholas M., 2016. "Financial intermediaries, capital markets, and economic growth: empirical evidence from six countries," Working Papers 19908, University of South Africa, Department of Economics.
    2. Nyasha, Sheilla & Gwenhure, Yvonne & Odhiambo, Nicholas M., 2017. "The Dynamic Causal Linkage Between Financial Development And Economic Growth: Empirical Evidence From Ethiopia," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 70(1), pages 73-102.
    3. Nicholas M. Odhiambo & Sheilla Nyasha, 2022. "Financial Development and Economic Growth in Uganda: A Multivariate Causal Linkage," Journal of African Business, Taylor & Francis Journals, vol. 23(2), pages 361-379, April.
    4. Okuyan Hasan Aydın, 2022. "The Nexus of Financial Development and Economic Growth Across Developing Economies," South East European Journal of Economics and Business, Sciendo, vol. 17(1), pages 125-140, June.
    5. Kar, Muhsin & NazlIoglu, Saban & AgIr, Hüseyin, 2011. "Financial development and economic growth nexus in the MENA countries: Bootstrap panel granger causality analysis," Economic Modelling, Elsevier, vol. 28(1-2), pages 685-693, January.
    6. Manuel Ennes Ferreira & Jelson Serafim & João Dias, 2022. "Finance-Growth Nexus: Evidence from Angola," Working Papers REM 2022/0227, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    7. Sheilla Nyasha & Nicholas M. Odhiambo, 2018. "Financial Development and Economic Growth Nexus: A Revisionist Approach," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 47(1), pages 223-229, February.
    8. Polat, Ali & Shahbaz, Muhammad & Ur Rehman, Ijaz & Satti, Saqlain Latif, 2013. "Revisiting Linkages between Financial Development, Trade Openness and Economic Growth in South Africa: Fresh Evidence from Combined Cointegration Test," MPRA Paper 51724, University Library of Munich, Germany, revised 25 Nov 2013.
    9. Nyasha Sheilla & Odhiambo Nicholas M., 2017. "Bank Versus Stock Market Development in Brazil: An ARDL Bounds Testing Approach," South East European Journal of Economics and Business, Sciendo, vol. 12(1), pages 7-21, April.
    10. Jagadish Prasad Bist & Nar Bahadur Bista, 2018. "Finance–Growth Nexus in Nepal: An Application of the ARDL Approach in the Presence of Structural Breaks," Vikalpa: The Journal for Decision Makers, , vol. 43(4), pages 236-249, December.
    11. Krishna Murari, 2017. "Financial Development–Economic Growth Nexus: Evidence from South Asian Middle-income Countries," Global Business Review, International Management Institute, vol. 18(4), pages 924-935, August.
    12. Rudra P. Pradhan & Mak B. Arvin & John H. Hall & Sahar Bahmani, 2014. "Causal nexus between economic growth, banking sector development, stock market development, and other macroeconomic variables: The case of ASEAN countries," Review of Financial Economics, John Wiley & Sons, vol. 23(4), pages 155-173, November.
    13. Ahmed Kchikeche & Ouafaà Khallouk, 2021. "On the nexus between economic growth and bank-based financial development: evidence from Morocco," Middle East Development Journal, Taylor & Francis Journals, vol. 13(2), pages 245-264, July.
    14. KCHIKECHE, Ahmed & KHALLOUK, Ouafaà, 2021. "On the Nexus Between Economic Growth and Bank-based Financial Development: Evidence from Morocco," MPRA Paper 118294, University Library of Munich, Germany.
    15. , Aisdl, 2019. "Stock Market And Economic Growth In Vietnam," OSF Preprints ucbhp, Center for Open Science.
    16. repec:agr:journl:v:3(604):y:2015:i:3(604):p:171-186 is not listed on IDEAS
    17. Pradhan, Rudra P. & Arvin, Mak B. & Norman, Neville R., 2015. "The dynamics of information and communications technologies infrastructure, economic growth, and financial development: Evidence from Asian countries," Technology in Society, Elsevier, vol. 42(C), pages 135-149.
    18. Ismail Senturk & Fiaz Ahmad Sulehri & Syeda Mehak Ali, 2022. "Financial Development and Innovation Led-Growth: A Case of Selected Developing Countries," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 8(3), pages 81-97, September.
    19. Yusuf Ekrem AKBAS, 2015. "Financial development and economic growth in emerging market: bootstrap panel causality analysis," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(604), A), pages 171-186, Autumn.
    20. Kumar, Ronald Ravinesh & Stauvermann, Peter Josef & Loganathan, Nanthakumar & Kumar, Radika Devi, 2015. "Exploring the role of energy, trade and financial development in explaining economic growth in South Africa: A revisit," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 1300-1311.
    21. PINSHI, Christian P., 2020. "On the causal nature between financial development and economic growth in the Democratic Republic of the Congo: Is it supply leading or demand following?," MPRA Paper 101837, University Library of Munich, Germany, revised 14 Jul 2020.

    More about this item

    Keywords

    bank-based financial development; market-based financial development; economic growth; Granger-causality;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vrs:aicuec:v:65:y:2018:i:3:p:247-268:n:6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.sciendo.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.