Financial intermediaries, capital markets, and economic growth: empirical evidence from six countries

Sheilla Nyasha and Nicholas Odhiambo

No 19908, Working Papers from University of South Africa, Department of Economics

Abstract: AbstractThis paper investigates the dynamic causal relationship between financial systems and economic growth in three developing countries ? South Africa, Brazil and Kenya ? and three developed countries ? the United States of America, the United Kingdom and Australia ? during the period from 1980 to 2012. The study includes both bank-based and market-based financial systems. The study includes savings as an intermittent variable ? thereby creating a trivariate Granger-causality model. The method of means-removed average is employed to construct bank- and market-based financial development indices. Using the ARDL bounds testing approach, the empirical results of this study reveal that the causality between financial systems and economic growth is indistinct; and it varies widely across countries and over time. Overall, the study finds that there is a long-run causal flow from bank-based financial development to economic growth in the UK and Australia; a distinct feedback loop in the case of Brazil; and a neutrality relationship in the case of Kenya, South Africa and the USA. For market-based financial development, the study finds evidence of bidirectional causality in the case of Kenya; a demand-following hypothesis in South Africa and Brazil; and a neutrality relationship in the case of Australia and the UK. The study, therefore, repudiates the traditional argument, which contends that the finance-growth nexus follows a supply-leading phenomenon

Keywords: Bank-Based Financial Development; Market-Based Financial Development; Stock Market; Banks; Economic Growth; Granger-Causality; USA; UK; Australia; South Africa; Brazil; Kenya (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://uir.unisa.ac.za/bitstream/handle/10500/1990 ... 20January%202016.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uza:wpaper:19908

Access Statistics for this paper

More papers in Working Papers from University of South Africa, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Shaun Donovan ().