Abstract:
There are vast literature about the relationship between financial development and economic growth. In most studies, the positive relation is approved while in few advocate that there is no relation. The positive relation may be from financial development to growth or vice versa or two ways. In this paper, the Granger causality relationship between financial development and economic growth is studied by the dynamic panel GMM-SYS approach and with two kinds of data, annual and five-non-overlapping data in MENA countries as a group. Five different measures of financial deepening are used to capture the variety of different channels through which financial development can affect growth. Results imply that a strong bi-directional causality between financial development and economic growth, but the relation from economic growth to financial development is stronger than vice versa direction. In this paper we argue about the determinants that influence the process of financial market integration in the East Asia-Pacific region. We question whether GDP, Exchange rate and real interest rate influence the financial integration. We construct a regression specification with respect to a probit/tobit panel model for our data set of the selected East Asia-Pacific countries over the 1990–2005 period. Generally, we find that macroeconomic indicators of the members are associated with higher or lower probability of integrating their financial markets and GDP has a positive effect on financial integration, while the results related to exchange rate and interest rate are ambiguous. The implication is that the elimination of exchange rate risk within the East Asia-Pacific region means the common currency, which reduces the remaining differences of investment and consumption opportunities across the member countries of the East Asia-Pacific during the implementation of financial integration.
Machine summary:
"To explore the causal relationship between financial deepening and economic growth, we use the Generalized Method of Moments (GMM) panel estimates proposed by Arellano & Bover (1995) and Blundell & Bond (1998) 1 to extract consistent and efficient estimates on the role of financial development on economic growth in the MENA countries.
Shan & Morris (2002) adopt Toda & Yamamoto’s (1995) model and by using quarterly data for the period 1985:I–1998IV investigate the causal relationship among the following variables: real GDP, ratio of total credit to GDP, spread of borrowing and lending interest rates, productivity, ratio of gross investment to GDP, ratio of total trade to GDP, consumer price index, official interest rate, stock market price index for 19 OECD countries.
Habibullah and Eng (2006) examine the causal relationship between financial development and economic growth of the Asian developing countries from a panel data perspective and use the system GMM technique developed by Arellano & Bover (1995) and Blundell & Bond (1998) and conducts causality testing analysis.
3- Model specification The specification used in this paper to investigate the mutual causality between GDP growth rate ( growth) and financial development (finance) is as follows: (7) (8) In equation (7) and (8), i and t denotes respectively for country and time.
To investigate the causality between economic growth and financial development, be assumed them as endogenous variable which are generated by a time stationary VAR (m) process in a panel data context."