AN OVERVIEW ON THE RELATIONSHIP BETWEEN FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH

Rishan Hewage, Jaafar Pyeman, Norashida Othman, Norsariah Binti Abdul Rahman and Shahsuzan Zakaria

Review of Business and Finance Studies, 2022, vol. 13, issue 1, 63-77

Abstract: Identifying the Financial Development (FD) and Economic Growth (EG) nexus has received considerable attention in both theoretical and empirical literature for many years. Empirically, many scholars argue financial sector plays a vital role in an economy and consider as one of the significant macroeconomic variables which decide the direction of the economic development of a country. Theoretically, the FD leads to identifying better investment opportunities, boosts innovation, enhances the efficiency of capital markets, and improves the risk-taking capacity of investors that eventually directing to a more efficient allocation of resources to the real sector. However, the findings in previous scholarly works are vague and inconclusive. Therefore, this study attempts to do an in-depth analysis of key theories, concepts, and the methodological limitations of the previous studies to measure the validity of FD and EG nexus from an empirical and theoretical perspective. The results of this paper enlighten the new research pathway and direct the policymakers to architect the country's fiscal policies and development strategies to achieve sustainable economic development goals.

Keywords: Economic Growth; Financial Development; Asian Region (search for similar items in EconPapers)
JEL-codes: B26 B41 (search for similar items in EconPapers)
Date: 2022
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