Does financial development promote growth in Kuwait? time- and frequency- domain causality testing

Hamza Almassri, Huseyin Ozdeser and Andisheh Saliminezhad

The Journal of International Trade & Economic Development, 2020, vol. 29, issue 8, 952-972

Abstract: The present study endeavors to explore the dynamic causal relationship between economic growth and financial development in Kuwait, covering the time span between 1991 and 2017. Based on the objective of presenting robust results in relation to the research focus, a combination of time and frequency-domain methodologies has been applied. Using the Toda–Yamamoto and the Fourier Toda–Yamamoto time-domain techniques, no causal direction is found through the former test, while the causality flowing from financial development to economic growth is demonstrated by the latter. Nevertheless, the spectral causality test developed by Breitung and Candelon [(2006). “Testing for short- and long-run causality: A frequency-domain approach.” Journal of Econometrics 132 (2): 363–378. https://doi.org/10.1016/j.jeconom.2005.02.004] gives a more thorough overview of the dynamic causal relationships because it allows the temporary and permanent movements in the linkages between variables to be differentiated. The findings show proof of a bidirectional causality between financial development and economic growth. Our findings highlight the emphasis on covering the frequency causality to provide greater insight into the interrelationship between the variables under consideration.

Date: 2020
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DOI: 10.1080/09638199.2020.1769711

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