Is there a Causality between Economic Growth Variables and Derivatives Usage?

Collin Chikwira (collincolchi1913@gmail.com), Veena Parboo Rawjee (rawnjeeve@dut.ac.za) and Rishidaw Balkaran (balkaranr@cput.ac.za)
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Collin Chikwira: Durban University of Technology
Veena Parboo Rawjee: Durban University of Technology
Rishidaw Balkaran: Cape Peninsula University of Technology

Acta Universitatis Danubius. OEconomica, 2021, issue 17(1), 108-123

Abstract: The study empirically tested the relationship between derivative markets growth and economic growth for the period 1996 to 2018. The direction of causality was tested utilising a South African data set. The Vector autoregressive model estimation technique and Granger causality test were employed to assess the relationship and direction of causality between the variables in STATA 15. The results firstly exhibit that derivatives and economic growth had a negative correlation with Vector autoregressive models, both in the short- and long-terms. Secondly, derivatives and economic growth had a unidirectional relationship from derivatives to economic growth with the Granger causality test. The explanatory variables, bank lending and firm value, had a bi-directional relationship with economic growth. Moreover, derivatives had a bi-directional causality for bank lending and firm value in South Africa. Based on the results generated, it is concluded that regulators and policy-makers should encourage the use of derivatives so that banks could efficiently provide funding and enhance liquidity on the capital market, which will increase economic activities. The model captured the liquidity channel and productivity of the industries through bank lending and firm value as a result of derivatives usage.

Keywords: gross domestic product; Granger; bank lending; firm value (search for similar items in EconPapers)
Date: 2021
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