Stock market development and financial depth are multifaceted concepts and there are a number of indicators which can be used to measure them. What is happening to the impact of financial deepening on economic growth. This research work examines financial deepening and economic growth in nigeria from 1985 to 2014. The study uses the second generation panel unit root test and panel. Pdf this study investigates the dynamic relationship between financial deepening and economic growth in jordan over the period. The effect of financial deepening on economic growth in nigeria 1985 2014 ifeanyi o. Financial deepening is a multifaceted process that involves the interaction of a number of markets primary, secondary and retail, instruments deposits, loans, foreign exchange, bonds. The present paper addresses the empirical relationship between financial development and economic growth for ten less developed countries over the period 19702000. However, none of the earlier studies has provided an explanation for why the relationship has weakened over time. Levin was of the main advocates of positive effect of financial development on economic growth. Pdf the impact of financial deepening on economic growth. Research journal of finance and accounting issn 22221697 paper issn 22222847 online vol 3, no 10, 2012.
Pdf financial deepening and economic development of. This implies that economic growth can stimulate financial deepening in taiwan in the highgrowth regime. This empirical study examined financial deepening and economic development in nigeria between 1986 and 2007. The first model investigates whether the financial system has a direct or indirect effect on per capita output via the investment rate. The paper examines the impact of financial deepening on long run economic growth in south africa over the period 195492. The paper examines whether a longrun relationship between financial development and economic growth exists employing panel integration and cointegration techniques for a dynamic heterogeneous panel of 15 oecd and 50 nonoecd countries over the period 19752000. Jalil and feridun 2011 proved the strong link between financial deepening and economic growth in pakistan for the period of 19752008. Financial deepening and economic growth munich personal. This paper investigates the longrun relationship between financial development and domestic public debt in 18 emerging economies over the period 198720. The central focus is that a high level of financial deepening is a necessary condition for accelerating growth in an economy. An augmented neoclassical growth framework is adopted to provide an evaluation of the impact of financial sector. Institutional development, financial deepening and economic. Thus, financial deepening can increase economic growth in taiwan. Role of financial institutions in economic development.
A number of initiatives are also presented as part of this package. There is a general thinking among the economists that financial development stimulates economic growth. The first step in defining economic development is distinguishing it from the concept of economic growth. Economic growth is what mainly determines the material wellbeing of a nation. The depth of the financial sector has generally been found to promote economic growth by increasing economic efficiency, investment and growth ngugi, amanja, and maana, 2005. Efrem bycer, director of economic development at code for america introduces cfas new focus area, and provides context to how different aspects of. Financial deepening is a term used by economists to refer to increasing provision of financial services. The source of inspiration for the framework is the. Commission sets out roadmap for deepening europes economic. Quantifying the impact of financial development on economic.
To attain economic development, a country needs more investment and production. What is happening to the impact of financial deepening on. In this study, the ratio of market capitalization to gdp mcy is used as a measure of the degree of development of the stock market. In the theoretical part of the paper, by developing a solowswan growth model augmented with financial markets in the tradition of wu, hou, and cheng 2010, we show that debt from credit markets and equity from stock. Financial deepening and economic growth in the european transition economies. He focuses on the causal relationship between the two variables. Anwar and nguyen 2011 investigated the above mentioned link in vietnam. Financial deepening, economic growth and development. It can refer both a wider choice of services and better access for different socioeconomic groups. King and levine 1993 studied the relation between economic growth and financial development by neoschumpeterian model. This can happen only when there is a facility for savings. Financial deeping in economic develop ment paperback july 1, 1994 by edward s.
Dec 04, 2012 research journal of finance and accounting issn 22221697 paper issn 22222847 online vol 3, no 10, 2012. Stock market development and financial deepening in. Financial deepening there is a general consensus among economists that financial development spurs economic growth. Role of financial system in economic development of a country. The influence of financial deepening on the economic growth of any nation cannot be underestimated. His findings generally support the view that financial deepening is a necessary causal factor of economic growth. The present paper incorporates the effects of inflation on financial deepening. Oct 06, 2015 efrem bycer, director of economic development at code for america introduces cfas new focus area, and provides context to how different aspects of code for americas programs are transforming. The impact of financial deepening on economic growth issuu. An examination of the impact of financial deepening on long. The following are the roles of financial system in the economic development of a country. Financial deepening is a term used by economists to refer to increasing provision of financial.
The impact of financial deepening on economic growth. Financial deepening dynamics and implication for financial. Theoretically, financial development creates enabling conditions for growth through either a supplyleading financial development spurs growth or a demandfollowing growth generates demand for financial products channel. Our findings support the existence of a single longrun equilibrium relation between financial deepening, economic growth and a set of control variables.
The adb economics working paper series is a forum for stimulating discussion and eliciting feedback on ongoing and recently completed research and policy studies undertaken by the asian development bank adb staff, consultants, or resource persons. It focused on the impact of stock market and bank deepening variables such as money. This weakening effect stems from financial deepening, rather than from greater access or higher efficiency. Shaw author see all 2 formats and editions hide other formats and editions. Financial deeping in economic development shaw, edward s. Finance has been a neglected area in the development literature, but a number of recent writings have helped to redress the balance. Since ronald mckinnon and edward shaw advocated financial liberalization and deepening as growthenhancing economic policies in 1973, there have been.
Arestis, demetriades and luintel 2001 examine the relationship among stock market development, credit market development and economic growth, utilizing time series methods and data from five developed countries. The effect of financial deepening on economic growth in kenya. The series deals with key economic and development problems, particularly. Economic development reference guide acknowledgements verizon verizons mission is to open doors for economic development and to build relationships and partnerships that help create and retain jobs in verizon communities. This study investigates the dynamic relationship between financial deepening and economic growth in jordan over the period 19922014. Keshab bhattarai 2015 financial deepening and economic growth, applied economics, 47. Two models are developed using the johansen vecm structure. The association between economic growth and financial deepening has been a wideranging subject of experiential research.
Financial deepening can have an effect on both individuals and societies economic situations. The central focus is that a high level of financial deepening is a necessary condition. Valev 2004 show that the relationship varies with the level of economic development. The 2008 global financial crisis raised some legitimate questions about financial deepening and financial development, given that the crisis originated in advanced economies aes, where the financial sector had grown both very large and very complex. In addition, the impact of financial deepening on economic development has a significant and positive effect in the high and low growth regimes. Three different measures of financial deepening are used to capture the variety of different channels through which financial. Pdf financial deepening and economic development in. The effect of financial deepening on economic growth in.
Rousseau and paul wachtel although the financegrowth relationship is now firmly entrenched in the empirical literature, we show that it is not as strong in more recent data as it was in the original studies with data for the period from 1960 to 1989. Generally, the link between institutional development and economic growth has gained increasing interest among researchers in recent decades see the survey by acemoglu et al. The econometric techniques are presented in section 3. Efrem bycer deepening impact in economic development. The overall aim is to enhance the unity, efficiency and democratic accountability of europes economic and monetary union by 2025. Financial deepening and economic growth in the asiapacific region.
Pdf financial deepening and economic growth researchgate. Financial deepening and economic development of nigeria. The long run growth is a function of real physical capital not the nancial leverages or derivatives that promotes the articial nancial deepening. Deepening the economic and monetary union is a means to an end. Further, the evidence points to a bidirectional causality between financial deepening and growth. New jobs are the lifeblood of any thriving region and can ensure economic health and prosperity for years to come. Pdf financial deepening and economic growth in saudi arabia. The relationship between financial deepening and economic.
Various effects of the financial deepening came to the. Thereafter, many researchers surveyed this relation. Financial deepening and economic growth in saudi arabia 153 journal of emerging market finance, 2 2014. To this end, the study evaluated the effect of financial deepening on economic growth in nigeria. Specifically, deepening has a larger impact on growth with a moderate level of financial sector development. Nevertheless defining economic development is a necessary prerequisite to move discussion towards objective policy discussion and robust measurement. This paper examines the extent to which financial development contributes to output expansion in malaysia, during the period 19602003. Financial sector plays an indispensable role in the overall development of a country. Pdf financial deepening and economic development of nigeria.
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