The Impact of Shadow Banking on Economic Growth: Evidence from Cross Country Data (2006–2018)

Sheunesu Zhou () and D Tewari Dev ()
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Sheunesu Zhou: Department of Business Management, Faculty of Commerce, Administration and Law, University of Zululand, P Bag X1001, Kwadlangezwa, 3886, Richards Bay, South Africa
D Tewari Dev: #x2020;Department of Economics, Faculty of Commerce, Administration and Law, University of Zululand, P Bag X1001, Kwadlangezwa, 3886, Richards Bay, South Africa

Journal of International Commerce, Economics and Policy (JICEP), 2020, vol. 11, issue 03, 1-19

Abstract: Shadow banking has become an important part of many financial systems despite having contributed to the financial crisis of 2008/2009. This study analyzes the relationship between shadow banking and economic growth using a panel of 28 developed and emerging economies. We employ panel feasible GLS technique and find a positive association between shadow banking and economic growth in the long-run. Further, we test for the Finance–Growth relationship using Granger causality tests and find a bi-directional relationship between shadow banking and economic growth. Stock market development and bank credit also have positive bi-directional relationships with economic growth. Our findings emphasize the role of financial innovation in enhancing economic performance given a stable regulatory environment. We suggest regular review of macro-prudential policy to carter for new financial activities and also to allow for development of new financing techniques.

Keywords: Shadow banking; economic growth; financial development; panel data (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S1793993320500106

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