NDLI: Financial Development and Economic Growth: Evidence from Heterogeneous Panel Data of Low Income Countries

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Financial Development and Economic Growth: Evidence from Heterogeneous Panel Data of Low Income Countries

Content Provider	Semantic Scholar
Author	Qayyum, Abdul Siddiqui, Rehana Aziz Hanif, Muhammad Nadim
Copyright Year	2004
Abstract	This paper examines empirical relationship between financial development and economic growth while incorporating the inflation rate effect on financial development for low income countries. The study focuses on both the indirect finance and the direct finance, separately as well as collectively. We apply most appropriate econometric methodology of Weinhold (1999) and Nair-Reichert and Weinhold (2001) for causality analysis in heterogeneous panel data. Two sets of results are reported. First, the relationship between financial development and economic growth from contemporaneous non-dynamic fixed effects panel estimation can at best be interpreted as mixed. Negative and statistically significant estimates of coefficient of the inflation and financial development interaction variable indicate that financial sector development is actually harmful for economic growth when inflation is rising. Second, in contrast with the recent evidence of Beck and Levine (2003), use of more appropriate econometric methodology of dynamic heterogeneous panel for causality analysis and a refined model reveal that there is no definite indication that finance spurs economic growth or growth spurs finance. Our findings are in line with the Lucas (1988) view on finance that the importance of financial matters is very badly over-stressed in popular and even much professional discussion.
File Format	PDF HTM / HTML
Alternate Webpage(s)	https://mpra.ub.uni-muenchen.de/23431/1/MPRA_paper_23431.pdf
Alternate Webpage(s)	http://www.wise.xmu.edu.cn/PANEL2007/paper/HANIF(Muhammad%20Nadim).pdf
Language	English
Access Restriction	Open
Content Type	Text
Resource Type	Article

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