Financial development and economic growth: a symbiotic relationship

Jagdish Handa and Shubha Rahman Khan

Applied Financial Economics, 2008, vol. 18, issue 13, 1033-1049

Abstract: This article evaluates the plausibility of financial development as a tool to boost economic growth, using time series data on a cross-section of thirteen countries at different stages of development. Using annual data from 1960 to 2002, it conducts stationarity tests on the variables, followed by cointegration analysis among the banking and non-banking financial variables and GDP. It also tests for the direction of Granger-causality. Our results show that for Bangladesh, Sri Lanka, Brazil, Malaysia, Thailand and Turkey, this causality runs from economic growth to financial development. Granger-causality is bi-directional for India, Argentina, Germany, Japan, the UK and the USA. There does not exist one-way Granger-causality from financial development to economic development for any of the countries examined

Date: 2008
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DOI: 10.1080/09603100701477275

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