Does Financial Development Cause Economic Growth? The Case of India
TL;DR: In this paper, the authors examined whether financial development has "caused" economic growth in India since 1996 and examined the dynamic interactions between the growth of real Gross Domestic Product and indicators of financial development.
Abstract: This article examines whether financial development has ‘caused’ economic growth in India since 1996. The dynamic interactions between the growth of real Gross Domestic Product and indicators of fi...
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01 Jan 2016
5 citations
01 Jun 2008
TL;DR: In this article, a review of what is actually meant by Gharrar and how it affects the enforceability of the Bai Bithaman Ajil contract in the Shariah is presented.
Abstract: One of the popular method of home financing in Islamic banking is Bai Bithaman Ajil. However there are circumstances whereby in this type of contract the probability of ghārār involved is very high especially dealing with the purchase of assets which is not yet in existence.Therefore this paper aims to review what is actually meant by ghārār and how does it affects the enforceability of the Bai Bithaman Ajil contract in the Shariah. It also provides on the reasons why in certain occasion the purchase of assets under BBA contract has resulted to the dominance entry of the principles of ghārār hence making it unenforceable under Shariah.
5 citations
Cites background from "Does Financial Development Cause Ec..."
...Empirical studies have been sought to identify the link between financial intermediaries and economic growth (see for example Levine and Zervos (1996, 1998), Antje and Jovanovic (1993), Demirguc-Kunt and Levine (1996a and 1996b) and Demetriades and Hussein (1996)....
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TL;DR: In this article, the authors examined the finance growth link of two low-income Sub-Saharan African economies (e.g., Ethiopia and Kenya) and found that neither the level of financial intermediary development nor stock market development explains economic growth in Kenya.
Abstract: This paper examines the finance growth link of two low-income Sub-Saharan African economies – Ethiopia and Kenya – which have different financial systems but are located in the same region. Unlike previous studies, we account for the role of non-bank financial intermediaries and formally model the effect of structural breaks caused by policy and market-induced economic events. We used the Vector Autoregressive model (VAR), conducted impulse response analysis and examined variance decomposition. We find that neither the level of financial intermediary development nor the level of stock market development explains economic growth in Kenya. For Ethiopia, which has no stock market, intermediary development is found to be driven by economic growth. Three important inferences can be made from these findings. First, the often reported positive link between finance and growth might be caused by the aggregation of countries at different stages of economic growth and financial development. Second, country-specific economic situations and episodes are important in studying the relationship between financial development and economic growth. Third, there is the possibility that the econometric model employed to test the finance growth link plays a role in the empirical result, as we note that prior studies did not introduce control variables.
4 citations
Cites background from "Does Financial Development Cause Ec..."
...Some find bi-directional relationships between the two (Thangavelu et al. 2004, pp. 247–260) while others find that growth drives financi l development (Chakraborty, 2008, pp. 109–139)....
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Journal Article•
TL;DR: The coercion to uplift an economy in a right way to growth is more a mystery than a fact as mentioned in this paper, and the coercion for uplifting an economy to growth, which is the major intent of every nation that contributes towards its development but there are certain hurdles such as over population, illiteracy and political instability that hold back their economic growth.
Abstract: The coercion to uplift an economy in a right way to growth is more a mystery than a fact. Every country in the world is determined to be amongst the strong economies of the world. This draws a line of difference between developed and developing economies of the world. Developed countries have strong economies as compared to the developing countries. Economic growth is the major intent of every nation that contributes towards its development but there are certain hurdles such as over population, illiteracy and political instability that hold back their economic growth. Economic growth of every nation is dependent upon the role of financial institutions and the ultimate financial development. Policymakers and economists generally agree that financial development contributes towards financial institutions and markets, such as commercial and investment banks, bond and stock exchanges which in turn lead to economic growth.
4 citations
TL;DR: In this paper, the authors examined the relationship between stock market development and economic growth in Nepal by employing autoregressive distributed lag (ARDL) model with bound testing procedures with bounding test procedures.
Abstract: This study examines the relationship between stock market development and economic growth in Nepal by employing autoregressive distributed lag (ARDL) model with bound testing procedures. The study ...
4 citations
References
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TL;DR: The relationship between co-integration and error correction models, first suggested in Granger (1981), is here extended and used to develop estimation procedures, tests, and empirical examples.
Abstract: The relationship between co-integration and error correction models, first suggested in Granger (1981), is here extended and used to develop estimation procedures, tests, and empirical examples. If each element of a vector of time series x first achieves stationarity after differencing, but a linear combination a'x is already stationary, the time series x are said to be co-integrated with co-integrating vector a. There may be several such co-integrating vectors so that a becomes a matrix. Interpreting a'x,= 0 as a long run equilibrium, co-integration implies that deviations from equilibrium are stationary, with finite variance, even though the series themselves are nonstationary and have infinite variance. The paper presents a representation theorem based on Granger (1983), which connects the moving average, autoregressive, and error correction representations for co-integrated systems. A vector autoregression in differenced variables is incompatible with these representations. Estimation of these models is discussed and a simple but asymptotically efficient two-step estimator is proposed. Testing for co-integration combines the problems of unit root tests and tests with parameters unidentified under the null. Seven statistics are formulated and analyzed. The critical values of these statistics are calculated based on a Monte Carlo simulation. Using these critical values, the power properties of the tests are examined and one test procedure is recommended for application. In a series of examples it is found that consumption and income are co-integrated, wages and prices are not, short and long interest rates are, and nominal GNP is co-integrated with M2, but not M1, M3, or aggregate liquid assets.
27,170 citations
Book•
01 Jan 1934
TL;DR: Buku ini memberikan infmasi tentang aliran melingkar kehidupan ekonomi sebagaimana dikondisikan oleh keadaan tertentu, fenomena fundamental dari pembangunan EKonomi, kredit, laba wirausaha, bunga atas modal, and siklus bisnis as mentioned in this paper.
Abstract: Buku ini memberikan infmasi tentang aliran melingkar kehidupan ekonomi sebagaimana dikondisikan oleh keadaan tertentu, fenomena fundamental dari pembangunan ekonomi, kredit dan modal, laba wirausaha, bunga atas modal, dan siklus bisnis.
16,325 citations
TL;DR: In this paper, the authors examined a cross-section of about 80 countries for the period 1960-89 and found that various measures of financial development are strongly associated with both current and later rates of economic growth.
Abstract: Joseph Schumpeter argued in 1911 that the services provided by financial intermediaries - mobilizing savings, evaluating projects, managing risk, monitoring managers, and facilitating transactions -stimulate technological innovation and economic development. The authors present evidence that supports this view. Examining a cross-section of about 80 countries for the period 1960-89, they find that various measures of financial development are strongly associated with both current and later rates of economic growth. Each measure has shortcomings but all tell the same story: finance matters. They present three main findings, which are robust to many specification tests: The average level of financial development for 1960-89 is very strongly associated with growth for the period. Financial development precedes growth. For example, financial depth in 1960 (the ratio of broad money to GDP) is positively and significantly related to real per capita GDP growth over the next 30 years even after controlling for a variety of country-specific characteristics and policy indicators. Financial development is positively associated with both investment rate and the efficiency with which economies use capital. Much work remains to be done, but the data are consistent with Schumpeter's view that the services provided by financial intermediaries stimulate long-run growth.
8,204 citations
"Does Financial Development Cause Ec..." refers background in this paper
...Several studies show that it is the bank-based financial structure that spurs economic growth (Boyd and Prescott 1986; King and Levine 1993)....
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7,554 citations
"Does Financial Development Cause Ec..." refers background in this paper
...Schumpeter (1912), in his effort to analyze the importance of technological innovation in long-run economic growth, emphasized the crucial role that the banking system would play in facilitating investment in innovation and productive investment by the entrepreneur....
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Posted Content•
TL;DR: This paper showed that stock market liquidity and banking development both positively predict growth, capital accumulation, and productivity improvements when entered together in regressions, even after controlling for economic and political factors.
Abstract: Do well-functioning stock markets and banks promote long-run economic growth? This paper shows that stock market liquidity and banking development both positively predict growth, capital accumulation, and productivity improvements when entered together in regressions, even after controlling for economic and political factors. The results are consistent with the views that financial markets provide important services for growth and that stock markets provide different services from banks. The paper also finds that stock market size, volatility, and international integration are not robustly linked with growth and that none of the financial indicators is closely associated with private saving rates. Copyright 1998 by American Economic Association.
3,399 citations