The short-run relationship between the financial system and economic growth: New evidence from regional panels |
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| Affiliation: | 1. Centre for Financial Econometrics, Deakin University, Melbourne, Australia;2. School of Economics, Finance, and Marketing, Royal Melbourne Institute of Technology University, Melbourne, Australia;1. Vinod Gupta School of Management, Indian Institute of Technology Kharagpur, WB 721302, India;2. Department of Economics, Trent University, Peterborough, Ontario K9J 7B8, Canada;3. Department of Financial Management, University of Pretoria, Pretoria 0028, South Africa;4. Department of Economics, University of Wisconsin at Parkside, Kenosha, WI 53144, USA |
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| Abstract: | In this paper, we examine the impact of the financial system on economic growth for a panel of 65 developing countries. The novelty of our paper is that we examine these relationships for various regional panels. Our main findings are that while for the full panel of 65 countries there is evidence of financial sector-led growth, bank credit has a negative effect on economic growth. At the regional level, for the Middle Eastern countries evidence suggests that neither the financial sector nor the banking sector contributes to growth. Except for Asia, the role of financial sector development on economic growth is relatively weak. Finally, except for the Middle Eastern countries, clear evidence is found in favour of bank credit having a statistically significant and negative effect on economic growth. |
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