Economics at your fingertips  

Modelling the effects of financial sector functions on economic growth in a developing country: a cointegration and error correction approach

David Tennant, Claremont Kirton and Abdullahi Abdulkadri

Journal of Developing Areas, 2011, vol. 44, issue 2, 183-206

Abstract: This study develops proxies for each of Levine's (1997) five functions of the financial sector, and models the relationship between these functions and economic growth using methods that more accurately conform to theory, and which broaden our understanding of the mechanisms through which the financial sector impacts on growth. Our analytical models provide for inferences about the relative importance of each of the functions of the financial sector and cointegration and error correction methods are used to distinguish between the long and short-run impacts of financial sector intermediation on economic growth. Our results suggest that if financial sector reforms are to be more effective, greater focus has to be placed on mechanisms through which savings mobilization can be maximized, and the allocation of resources to productive uses can be facilitated. Policymakers should also not expect immediate results from such reforms, as although the functions of the financial sector were shown to have statistically significant long-run impacts on GDP, none of the functions had significant short-term effects on growth.

Keywords: Financial markets; financial crisis; economic growth; developing countries (search for similar items in EconPapers)
JEL-codes: E44 G20 O16 (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)

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:

Access Statistics for this article

More articles in Journal of Developing Areas from Tennessee State University, College of Business Contact information at EDIRC.
Bibliographic data for series maintained by Abu N.M. Wahid ().

Page updated 2023-06-15
Handle: RePEc:jda:journl:vol.44:year:2011:issue2:pp:183-206