Financial development and economic growth: the experiences of selected OIC countries
The financial sector, the money and capital market, has developed so much to the extent that it’s been said as being in the transition continuously and there is always a demand for it. The financial system keeps changing and within a year, various types of new financial tools being introduced in...
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| Main Author: | |
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| Format: | Article |
| Language: | English English |
| Published: |
Faculty of Economics and Management, Universiti Putra Malaysia
2014
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| Online Access: | http://irep.iium.edu.my/43955/1/43955_Financial%20Development.pdf http://irep.iium.edu.my/43955/2/43955_Financial%20Development_scopus.pdf http://irep.iium.edu.my/43955/ http://econ.upm.edu.my/ijem |
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| Summary: | The financial sector, the money and capital market, has developed
so much to the extent that it’s been said as being in the transition
continuously and there is always a demand for it. The financial system
keeps changing and within a year, various types of new financial tools
being introduced in the market. Moreover, the size of transaction
taking place is so large, that it could affects the economy positively.
If financial development causes economic growth, this is in line with
the “supply-leading” views, whereas if economic growth causes
financial development, then it is suitable with the “demand-following”
views. Focusing on selected OIC countries, the present study aims to
investigate the impact of financial development on economic growth
or vice versa, in respective countries. Data collected are ranging from
1960-2005 for each country and only countries which have sufficient
data (minimum of 30 years) are selected and used in the analysis. Base
on this, we select the following countries in this study: Bahrain, Egypt,
Iran, Jordan, Kuwait, Libya, Malaysia, Pakistan, and Saudi Arabia.
Using vector autoregressive model (VAR) and vector error correction
model (VECM), the above hypotheses are re-examined concerning
the relationship between financial development and economic growth.
The study finds that for Malaysia and Egypt, there is bi-directional
causality between financial development and economic growth.
Results on Iran and Jordan indicate unidirectional causality which
supports the “demand-following” views, while Bahrain, Kuwait,
Libya, Pakistan and Saudi Arabia signify no exact Granger-causality
relationship between the two variables. In addition, with the VECM
results, the error correction terms for Jordan and Kuwait are found to
be significant, implying that there is a long run relationship between
variable in at least one direction for each country. |
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