Direction of Causality Between Financial Development and Economic Growth. Evidence for Developing Countries

Open access


The results of extensive studies that analyzed the existence and meaning of correlations between the economic growth and the financial market development lead us to a more thorough study of these correlations. Therefore, we performed a broad study of the developing countries from around the world (the developing part of each region constructed by the World Bank through its Statistics Bureau). The regions taken into analysis were: Europe and Central Asia, South Asia, East Asia and the Pacific, the Arab world, Latin America & and the Caribbean, the Middle East and North Africa, and Sub-Saharan Africa. For comparison purposes, we have also included in the sample the North American countries, the Euro Area and the European Union as a whole, because these last three areas are the main benchmarks of the financial markets. The results are consistent with those from previous studies on the subject and vary depending on region and financial indicator considered.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • 1. Acaravci A. Ozturk I. Acaravci S.K. (2007) Finance - Growth Nexus: Evidence from Turkey Working Paper Series April 30.

  • 2. Ardic O.P. Damar H. E. (2006) Financial Sector Deepening and Economic Growth: Evidence From TurkeyWorking Papers 2006/19 Bogazici University Department of Economics.

  • 3. Arestis P Panicos O. D. Kul B. L. (2001) Financial Development and Economic Growth: The Role of Stock Markets Journal of Money Credit and Banking 33(1) 16-41.

  • 4. Atje R. Jovanovic B. (1993) Stock Markets and Development European Economic Review37 632-64

  • 5. Aslan A. Gör. Ö. Kucukaksoy İ. (2006) Finansal Gelisme ve Ekonomik Buyume Iliskisi: Turkiye Ekonomisi Uzerine Ekonometrik bir Uygulama Ekonometri ve Istatistik 4 12-28.

  • 6. Baier S. Dwyer G.P.Tamura R. (2004) Does Opening a Stock Exchange Increase Economic Growth? Journal of International Money and Finance 23(3). 311-331.

  • 7. Beck T. Levine R. (2004) Stock Markets Banks and Growth: Panel Evidence Journal of Banking and Finance 28(3) 423-442.

  • 8. Beck T. Lundberg M.Majnoni G. (2006) Financial intermediary development and growth volatility: do intermediaries dampenor magify shocks ? Journal of International Money and Finance 25 1146-1167.

  • 9. Boubakari A. Jin D. (2010) The Role of Stock Market Development in Economic Growth: Evidence from Some Euronext Countries International Journal of Financial Research 1(1) 14-20.

  • 10. Brasoveanu-Obreja L. Dragota V.Catarama D. Semenescu A. (2008) Correlation between capital market development and economic growth: the case of Romania Journal of applied quantitative methods 3(1) 64-75.

  • 11. Calderon C. Liu L. (2003) The Direction of Causality between Financial Development and Economic Growth Journal of Development Economics 72 321-34.

  • 12. Caporale G.M. Howells P. Soliman A.M. (2005) Endogenous Growth Models and Stock Market Development: Evidence from Four Countries Review of Development Economics 9(2) 2005 166-176.

  • 13. Caporale G.M. Rault C. Sova R. Sova A. (2009) Financial Development and Economic Growth: Evidence from Ten New EU Members Discussion paper DIW Berlin German Institute for Economic Research Berlin.

  • 14. Chang T. (2002) Financial development and economic growth in Mainland China: a note on testing demand-following or supply-leading hypothesis Applied Economics Letters 2002 9 869-873.

  • 15. Chung S.K. Tai S. (1999) Cointegration and causality between macroeconomic variables and stock market return Global Finance Journal 10(1) 71-81.

  • 16. Demirhan E. Aydemir O. Inkaya A. (2011) The Direction of Causality between Financial Development and Economic Growth: Evidence from Turkey International Journal of Management 28 (1) 3-19.

  • 17. Dumiter F.C. Todor S.P. (2014) Modeling the relationship between foreign direct investments and economic growth- evidence from Central and eastern European Countries Studia Universitatis „Vasile Goldis“ Arad Economics Series Vol 24 Issue 2/2014 p. 1-18.

  • 18. El-Wassal K.A. (2005) Understanding the Growth in Emerging Stock Markets Journal of Emerging Market Finance 4 227-261.

  • 19. Fama E.F. (1991). Efficient capital market Journal of Finance 46(5) 1575-1617.

  • 20. Garretsen H. Lensink R. Sterken E. (2004) Growth financial development societal norms and legal institutions Journal of International Financial Markets Institution and Money 14(2) 165-183.

  • 21. Ghirmay T. (2004) Financial development and economic growth in Sub-Saharan African countries: evidence from time series analysis African Development Review 16 415 - 432.

  • 22. Goldsmith R.W. (1969) Financial Structure and Development New Haven CT: Yale University Press

  • 23. Graff M. (1999) Financial Development and Economic Growth: A New Empirical Analysis Dresden Discussion Papers in Economics No. 5/99.

  • 24. Hanousek J. Filer R. K. (1997) The relationship between Economic Factors and equity markets in Central Europe Working paper Number 78 June 1997.

  • 25. Herve D.B.G. Shen Y. (2011) Management of Stock Price and It Effect on Economic Growth: Case Study of West African Financial Markets International Journal of Business and Management 6( 2) 52-71

  • 26. Hondroyiannis G. Lazaretou S. (2004) Inflation Persistence during Periods of Structural Change: An Assessment Using Greek Data Working Papers Series No. 370 June Bank of Greece 1-44.

  • 27. Kar M. Pentecost E.J. (2000) Financial Development and Economic Growth in Turkey: Further Evidence on the Causality Issue Economic Research Paper No. 00/27 1-20.

  • 28. King R. G. Levine R. (1993) Finance and Growth: Schumpeter Might Be Right The Quarterly Journal of Economics MIT Press 108(3) 717-37.

  • 29. Levine R. Zervos S. (1996) Stock market development and long-run growth World Bank Economic Review 10 323-339.

  • 30. Liang Q. Teng J.Z. (2006) Financial development and economic growth: Evidence from China China Economic Review 17 395-411.

  • 31. Mun H. W. Siong E. C. Long B.S. Thing T.C. (2008) Stock Market and Economic Growth in Malaysia: Causality Test Asial Social Science 4(4) 86-92.

  • 32. Naceur S. B. Ghazouani S. Omran M. (2008) Does Stock Market Liberalization Spur Economic and Financial Development in the Mena Region? Journal of Comparative Economics 36 673-693.

  • 33. Ndako U. B. (2010) Stock markets banks and economic growth: a time series evidence from South Africa African Finance Journal 12( 2) 72-92.

  • 34. Pearce D.K. Roley V. V. (1988) Firms characteristics unanticipated inflation and stock return Journal of Finance 43 (4) 965-981.

  • 35. Rajan R.G. Zingales L. (1998) Financial dependence and growth The American Economic Review 88 559-586.

  • 36. Rousseau P.L. Sylla R. (2001) Financial Systems Economic Growth and Globalization NBER Working Paper No. 8323 June 2001 1-51.

  • 37. Rousseau P.L.Wachtel P. (2009) What is Happening to the Impact of Financial Deepening on Economic Growth? Working Papers 0915 Department of Economics Vanderbilt University.

  • 38. Rousseau P.L. Wachtel P. (2011) What Is Happening To The Impact Of Financial Deepening On Economic Growth? Economic Inquiry Western Economic Association International vol. 49(1) pages 276-288 01.

  • 39. Schumpeter J. (1934) The Theory of Economic Development Cambridge Mass.: Harvard University Press.

  • 40. Seetanah B. Ramessur S.T. Rojid S. (2009) Financial development and economic growth New evidence from a sample of island economies Journal of Economic Studies Vol. 36( 2) 124-134.

  • 41. Stiglitz J. (2002) Participation and Development: Perspectives from the Comprehensive Development Paradigm Review of Development Economy Volume 6 Issue 2 163-182 June 2002.

  • 42. Unalmis D. (2002) The Causality Between Financial Development and Economic Growth: The Case of Turkey Working Papers 0203 Research and Monetary Policy Department Central Bank of the Republic of Turkey.

  • 43. Van Nieuwerburgh S. Buelens F. Cuyvers L. (2006) Stock market development and economic growth in Belgium Explorations in Economic History 43 13-38.

  • 44. Yay G. Oktayer A. (2009) Financial Development and Economic Growth - A Comparative Analysis Romanian Journal of Economic Forecasting 11(3) 56-74.

  • 45. Wachtel P. (2001) Growth and Finance: What Do We Know and How Do We Know It? International Finance 4(3) 335-362.

  • 46. Wong A. Zhou X. (2011) Development of Financial Market and Economic Growth: Review of Hong Kong China Japan The United States and The United Kingdom International Journal of Economics and Finance 3( 2) 111-115.

  • 47. Zivengwa T. Mashika J. Bokosi F. K. Makova T. (2011) Stock Market Development and Economic Growth in Zimbabwe International Journal of Economics and Finance 3(5) October 140-150.

  • 48. World Bank (2012) World Development Indicators. World Bank Washington DC.

Journal information
All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 334 124 13
PDF Downloads 197 89 10