Financial sector development

About: Financial sector development is a research topic. Over the lifetime, 1674 publications have been published within this topic receiving 90787 citations.

Investigating the Institutional Determinants of Financial Development: Empirical Evidence From SAARC Countries

Abstract: A more regulated and better working financial sector contributes toward achieving monetary growth based on proficient resource allocation and reducing information asymmetries. Current trends in res...

Foreign direct investment - economic nexus: The role of the level of financial sector development in Africa

Abstract: This study examines the relationship between foreign direct investment (FDI) and economic growth considering the influence of financial sector development (FSD). We empirically determine the threshold level of three FSD indicators that would ensure the positive association between FDI and growth once these threshold levels are exceeded. The policy implication of this study is that policies directed towards attracting FDI should go along with and not precede policies that aim at promoting FSD. Key words: Growth, foreign direct investment, financial sector development and threshold.

Testing Finance Growth Nexus: An Auto Regressive Distributed Lag (ARDL) Methodology Approach for Selected SAARC Countries

Abstract: Financial sector development has attained the attention of development economists since last two decades. It has been believed that this sector contributes positively to economic growth. Countries in the SAARC region have adopted financial sector reforms during the mid-1980s and early 1990s to bring their economies in line with the rest of world. This study has been conducted to analyze the relationship between financial sector development and economic growth in the four major South Asian Association for Regional Cooperation (SAARC) countries including Bangladesh, India, Pakistan and Sri Lanka. Using annual time series data set over the period 1975-2009, this study applied Auto Regressive Distributed Lag Modelling (ARDL) approach to test the existence of long run relationships between financial development and economic growth and finding the short run and long run estimates simultaneously. Our findings suggested that financial reforms taken by these economies have been fruitful to raise saving and capital formation. Moreover, a positive and robust link between financial sector development and economic growth has also been observed for the case of India, Pakistan and Sri Lanka, while for the case of Bangladesh this relationship is negative and significant. We may also conclude that there has been better utilization of resources for productive investment in these economies. (ProQuest: ... denotes formulae omitted.) INTRODUCTION It is a fact that a sound financial sector1 is a key determinant to achieve high and sustained economic development. The tole played by this sector for the promotion of economic growth has been studied by many researchers in the past including King and Levine (1993), Levine et al. (2000), Blum et al (2002), Rajan and Zingalas (2003) and Rousseau and Watchel (2005). An efficient financial sector enables an economy to mobilize resources to productive investment activities along with enhancing the overall growth through accumulation of savings. Financial sector also ensures funds transfer from savers to investors and selection of projects which yield maximum profit, monitoring of working projects, and also ensures the contracts enforcements (Bahar, 2009). Role of financial market2 and financial intermediaries3 are very significant for the transfer of funds from the surplus units of economy to deficit units (Ellahi, 2010). Before the adoption of financial sector reforms, the financial sectors of SAARC countries were not productive and were characterized by inefficiency in maintaining the profitability. High cost of intermediation along with mismanagement, overstaffing was prevalent (Klien, 1992). At an international level, skills were absent to achieve the goals of economic growth through this sector. On empirical grounds, McKinnon (1973) are the pioneers to introduce the studies in favor of financial liberalization. Moreover, conditionalities were imposed by international funding agencies, and the comprehensive process of financial reforms was started only in late 1980s. Barro and Sala-i-Martin (1990) found that low investment in the SAARC region was due to high government intervention, lack of productivity and political instability. However, since the emergence of integration at an international level, countries in this region have introduced various reforms in their financial sector to bring it in line with developed nations. This process started during the late 1980s and early 1990s. Various programs have been launched since then to strengthen the financial sector and to promote the liberalization process, which include privatization, interest rate deregulation and the removal of restrictions for the entry of new firms (Ellahi, 2010). PROBLEM STATEMENT AND OBJECTIVES Given the paramount importance of financial sector in the economic growth process, the author attempts to use financial sector development indicators with emphasis on the banking sector to examine the success of reforms in the selected SAARC region. …

Does financial sector development cause investment and growth? empirical analysis of the case of Ghana

Abstract: This article examines whether financial sector development has ‘caused’ economic growth and investment in Ghana between 1970 and 2007. As a proxy for financial sector development we use credit to private sector as per cent of GDP, bank liquid reserve – asset ratio and liquid liability as a per cent of GDP. We use GDP growth as a proxy for economic growth and real domestic investment for investment growth. The dynamic interactions between the growth of real Per capita Gross Domestic Product, real domestic investment and indicators of financial sector development are investigated using the concept of Granger Causality after testing for cointegration using Johansen techniques. The empirical results obtained by the Johansen method suggest the existence of a stable long-run relationship between growth rate and financial sector development indicators identified in the study. The same is true for investment growth. However, with the exception of credit to private sector where the causality runs from economic growth only, we find bidirectional causality between economic growth and financial sector development indicators. For investment growth, the causality runs from investment growth to financial sector indicators except between investment growth and Liquid liability where bidirectional causality recorded. The article establishes that, in an overall sense, economic and investment have ‘caused’ financial sector development in Ghana