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Financial Sector Development and Economic Growth Nexus in South Asian Middle Income Countries (SAMICs)
Current Issue
Volume 3, 2015
Issue 5 (October)
Pages: 258-265   |   Vol. 3, No. 5, October 2015   |   Follow on         
Paper in PDF Downloads: 43   Since Sep. 8, 2015 Views: 1283   Since Sep. 8, 2015
Authors
[1]
Krishna Murari, Department of Management, Sikkim University, Gangtok, India.
Abstract
In this paper we have made an attempt to explore the relationship between financial sector development and economic growth, using a panel data of South Asian middle income countries for the years 1980-2013. The macroeconomic data include real GDP index as an indicator of economic growth, proxies for financial sector development - domestic credit by banking sector/GDP, domestic credit to private sector/GDP, net inflows of FDI/GDP, M2/GDP and market capitalization/GDP; and control variables such as fixed capital formation/GDP, investment/GDP, and inflation in consumer prices/GDP. The results indicate that the domestic credit provided by banking sector has a significant positive relationship with economic growth in both directions but domestic credit to the private sector is associated with the economic growth in forward direction only, which confirms dearth in credit allocation in the region and suggests weak financial regulation and supervision. As far as the stock market developments are concerned, the results indicate that the stock market capitalization and liquidity have a significant role in growth and economic growth induces the stock market capitalization (size). Both the forms of investment (domestic and FDI), contribute significantly to economic growth in either direction. Stronger financial institutions, fixed capital formation and low inflation are crucial controlling growth factors.
Keywords
Financial Sector Development,Economic Growth, Panel Unit Root, Panel Co-integration, DOLS and FMOLS
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