19495

The Finance-Growth Nexus in the High Performance Asian Economies: A Panel Bootstrap Causality Analysis

Öz This study examines the causal link between financial development and economic growth in the High Performance Asian Economies (HPAEs). The newly developed panel causality testing approach of Emirmahmutoglu and Kose (2011) which controls for both cross-sectional dependency and heterogeneity across countries is applied to the 7 HPAEs for the period 1989-2017. In order to capture the relationship between real sector development and both credit and stock market development, two different indicators are used. The panel findings indicate that the while there is two-way causal relationship between stock market development and economic growth, the causality exist only one-way from growth to credit market development. This implies that the demand-following hypothesis is supported in the panel of HPAEs. Moreover, the results show that the existence and direction of causality differ among the different HPAEs. These various evidences lead to country specific policy implications and recommendations.

Anahtar Kelimeler:

Economic growth, Financial development, Cross-section dependency, Panel data models

PDF

___

1) Abu-Bader, S. and Abu-Qarn, A.S. (2008), “Financial development and economic growth: empirical evidence from six MENA countries”, Review of Development Economics, 12, 803-817.

2) Adeyeye, P.O., Fapetu, O., Aluko, O.A. AND Migiro, S.O., (2015), “Does supply-leading hypothesis hold in a developing economy? A Nigerian Focus”, Procedia Economics and Finance, 30, 30-37.

3) Ahmed, S.M. and Ansari, M.I., (1998), “Financial sector development and economic growth: The South-Asian experience”, Journal of Asian Economics, 9, 503-517.

4) Al-Yousif, Y.K., (2002), “Financial development and economic growth Another look at the evidence from developing countries”, Review of Financial Economics, 11, 131-150.

5) Arestis, P., Demetriades, P.O. and Luintel, K.B., (2001), “Financial development and economic growth: the role of stock markets”, Journal of Money, Credit and Banking, 33, 16-41.

6) Atje, R. and Jovanovic, B., (1993), “Stock markets and development”, European Economic Review, 37, 632-640.

7) Bangake, C. and Eggoh, J.C., (2011), “Further evidence on finance-growth causality: A panel data analysis”, Economic Systems, 35, 176-188.

8) Beck, T., Levine, R. and Loayza, N., (2000), “Finance and the sources of growth”, Journal of Financial Economics, 58, 261-300.

9) Beck, R., Georgiadis, G. and Straub, R., (2014), “The finance and growth nexus revisited”, Economics Letters, 124, 382-385.

10) Bencivenga, V.R. and Smith, B.D., (1991), “Financial intermediation and endogenous growth”, Review of Economic Studies, 58, 195-209.

11) Benhabib, J. and Spiegel, M.M., (2000), “The role of financial development in growth and investment”, Journal of Economic Growth, 5, 341-360.

12) Berthelemey, J and Varoudakis, A., (1996), “Economic growth convergence clubs, and the role of financial development”, Oxford Economic Papers, 48, 300-328.

13) Blackburn, K. and Hung, V., (1998), “A theory of financial intermediation and growth”, Economica, 65, 107-124.

14) Blackburn, K., Bose, N. and Capasso, S., (2005), “Financial development, financing choice and economic growth”, Review of Development Economics, 9, 135-149.

15) Breitung, J., (2005), “A parametric approach to the estimation of cointegration vectors in panel data”, Econometric Reviews, 24, 151-173.

16) Breusch, T and Pagan, A., (1980), “The Lagrange Multiplier test and its application to model specifications in econometrics”, Reviews of Economics Studies, 47, 239-253.

17) Calderon, C. and Liu, L. (2003), “The direction of causality between financial development and economic growth”, Journal of Development Economics, 72, 321-334.

18) Chandavarkar, A., (1992), “Of finance and development: neglected and unsettled questions”, World Development, 22, 133-142.

19) Chen, K.C., Wu, L. and Wen, J., (2013), “The relationship between finance and growth in China”, Global Finance Journal, 24, 1-12.

20) Christopoulos, D.K. and Tsionas, E.G., (2004), “Financial development and economic growth: evidence from unit root and cointegration”, Journal of Development Economics, 73, 55-74.

21) Colombage, S.R.N., (2009), “Financial markets and economic performances: Empirical evidence from five industrialized economics”, Research in International Business and Finance, 23, 339-348.

22) Cooray, A., (2010), “Do stock markets lead to economic growth?”, Journal of Policy Modelling, 32, 448-460.

23) Darrat, A.F., (1999), “Are financial deepening and economic growth causally related? Another Look at the evidence”, International Economic Journal, 13, 19-35.

24) Demetriades, P.O. and Hussein, K.A., (1996), “Does financial development cause economic growth? Time series evidence from 16 countries”, Journal of Development Economics, 51, 387-411.

25) Dickey, D.A. and Pantula, S.G., (1987), “Determining the order of differencing in autoregressive processes”, Journal of Business and Economic Statistics, 5, 455,461.

26) Deidda, L.G., (2006), “Interaction between economic and financial development”, Journal of Monetary Economics, 53, 233-248.

27) Durusu-Ciftci, D., İspir, S. and Yetkiner, H., (2017), “Financial development and economic growth: Some theory and more evidence”, Journal of Policy Modeling, 39, 290-306.

28) Emirmahmutoglu, F. and Kose, N., (2011), “Testing for Granger causality in heterogeneous mixed panels”, Economic Modelling, 28, 870-876.

29) Fase, M.M.G. and Abma, R.C.N., (2003), “Financial environment and economic growth in selected Asian countries”, Journal of Asian Economics, 14, 11-21.

30) Granger, C.W.J., (2003), “Some aspects of causal relationships”, Journal of Econometrics, 112, 69-71.

31) Greenwood, J. and Jovanovic, B., (1990), “Financial development, growth, and the distribution of income”, Journal of Political Economy, 98, 1076-1107.

32) Greenwood, J. and Smith, B., (1997), “Financial markets in development and the development of financial markets”, Journal of Economic Dynamics and Control, 145-181.

33) Hsueh, S., Hu, Y. and Tu, C., (2013), “Economic growth and financial development in Asian countries: a bootstrap panel granger causality analysis”, Economic Modelling, 32, 294-301.

34) Hurlin, C., (2008), “Testing for granger non causality in heterogeneous panel”, Mimeo, Department of Economics: University of Orleans.

35) Jung, W.S., (1986), “Financial development and economic growth: international evidence”, Economic Development and Cultural Change, 34, 333-346.

36) Kar, M., Nazlıoglu, S. and Agir, H., (2011), “Financial development and economic growth nexus in the MENA countries: bootstrap panel Granger causality analysis”, Economic Modelling, 28, 685-693.

37) King, R.G. and Levine, R., (1993a), “Finance and growth: Schumpeter might be right”, Quarterly Journal of Economics, 108, 717-738.

38) King, R.G. and Levine, R., (1993b), “Finance, entrepreneurship and growth: Theory and evidence”, Journal of Monetary Economics, 32, 513-542.

39) Kónya, L., (2006), “Exports and Growth: Granger causality analysis on OECD countries with a panel data approach”, Economic Modelling, 23, 978-992.

40) Levine, R., (1991), “Stock markets, growth and the tax policy”, Journal of Finance, 46, 1445-1465.

41) Levine, R., (1998), “The legal environment, banks and long-run economic growth”, Journal of Money, Credit and Banking, 30, 596-620.

42) Levine, R. and Zervos, S., (1996), “Stock market development and long-run growth”, The World Bank Economic Review, 10, 323-339.

43) Levine, R. and Zervos, S., (1998), “Stock markets, banks and economic growth”, The American Economic Review, 88, 537-558.

44) Liang, Q. and Teng, J.Z., (2006), “Financial development and economic growth: evidence from China”, China Economic Review, 17, 395-411.

45) Lucas, R.E., (1988), “On the mechanics of economic development”, Journal of Monetary Economics, 22, 3-42.

46) Luintel, K.B. and Khan, M., (1999), “A quantitative reassessment of the finance growth nexus: evidence from a multivariate VAR”, Journal of Development Economics, 60, 381-405.

47) Mankiw, N.G., Romer, D. and Weil, D., (1992), “A contribution to the empirics of economic growth”, Quarterly Journal of Economics, 2, 407-437.

48) McKinnon, R.I., (1973), Money and capital in economic development, Washington, DC: The Brookings Institution.

49) Naceur, S.B., and Ghazouani, S., (2007), “Stock markets, banks and economic growth: Empirical evidence from the MENA region”, Research in International Business and Finance, 21, 197-315.

50) Narayan, P.K. and Narayan, S., (2013), “The short-run relationship between the financial system and economic growth: New evidence from regional panels”, International Review of Financial Analysis, 29, 70-78.

51) Nili, M. and Rastad, M., (2007), “Addressing the growth failure of the oil economies: The role of financial development”, The Quarterly Review of Economics and Finance, 46, 726-740.

52) Odhiombo, N.M., (2008), “Financial development in Kenya: a dynamic test of the finance-led growth hypotheses”, Economic Issues, 13, 21-36.

53) Pagano, M., (1993), “Financial markets and growth: an overview”, European Economic Review, 37, 613-622.

54) Patrick, H.T., (1966), “Financial development and economic growth in underdeveloped countries”, Economic Development and Cultural Change, 14, 174-189.

55) Pesaran, M.H., (2004), “”General diagnostic tests for cross section dependence in panels”, CESifo Working Paper 1229, IZA Discussion Paper 1240.

56) Pesaran, M.H., Ullah, A., Yamagata, T., (2008), “A bias-adjusted LM test of error cross-section independence”, Econometrics Journal, 11, 105-127.

57) Pesaran, M.H. and Yamagata, T., (2008), “Testing slope homogeneity in large panels”, Journal of Econometrics, 142, 50-93.

58) Pradhan, R.P., Arvin, B.M., Norman, N.R. and Nishigaki, Y., (2014), “Does banking sector development affect economic growth and inflation? A panel cointegration and causality approach”, Applied Financial Economics, 24, 465-480.

59) Pradhan, R.P., Arvin, M.B., Bahmani, S., Hall, J.H. and Norman, N.R., (2017), “Finance and Growth: Evidence from the ARF countries”, The Quarterly Review of Economics and Finance, 66, 136-148.

60) Rioja, F. and Valev, N., (2004), “Does one size fit all? A reexamination of the finance and growth relationship”, Journal of Development Economics, 74, 429-447.

61) Robinson, J., (1952), The generalization of the general theory, the rate of interest and other essays, Macmillan, London, 67-142.

62) Rousseau, P.L. and Watchel, P., (2000), “Equity market and growth: cross-country evidence on timing and outcomes 1980-1995”, Journal of Banking and Finance, 24, 1933-1957.

63) Saint-Paul, G. (1992), “Technological choice, financial markets and economic development”, European Economic Review, 36, 763-781.

64) Schumpeter, J.A., (1911), The theory of economic development: an inquiry into profits, capital, credit, interest, and the business cycle, Translated by Opie, R. Harvard University Press, Cambridge, p. 1934.

65) Shaw, E.S., (1973), Financial deepening in economic development, Oxford: Oxford University Press.

66) Swamy, P.A.V.B., (1970), “Efficient inference in a random coefficient regression model”, Econometrica, 38, 311.323.

67) Toda, H.Y. and Yamamoto, T., (1995), “Statistical inference in vector autoregressions with possibly integrated process”, Journal of Econometrics, 66, 225-250.

68) Wolde-Rufael, Y., (2009), “Re-examining the financial development and economic growth nexus in Kenya”, Economic Modelling, 26, 1140-1146. 69) Xu, Z., (2000), “Financial development, investment and economic growth”, Economic Inquiry, 38, 331-344.

70) Yang, Y.Y. and Yi, M.H., (2008), “Does financial development cause economic growth? Implication for policy in Korea”, Journal of Policy Modeling, 30, 827-840.