Dynamic impact of financial development on economic growth

Heterogeneous panel data analysis of island economies

Kazi Sohag, Abi Bibi Nabilah, Rawshan Ara Begum

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

The purpose of this study is to find whether there is any significant impact, be it short run or long run, of financial development (FD) on economic growth from nine island economies. Despite the vast researches on the FD and economic growth nexus, little has been known from the perspective of island economies. Therefore, this study has attempted to analyse the dynamic relationship by incorporating both time series and cross-sectional data from the island economies over the period of 30 years (1980 to 2009). This study employed error correction-based pooled mean group (PMG), mean group (MG) and dynamic fixed effect (DFE) model for analysing dynamic heterogeneous panel data. Results from the PMG estimates demonstrate that financial development has a negative short run impact on economic growth. Whilst in the long run, there is a positive and a homogenous effect of financial development on growth across the island economy.

Original languageEnglish
Pages (from-to)77-95
Number of pages19
JournalInternational Journal of Economic Policy in Emerging Economies
Volume8
Issue number1
DOIs
Publication statusPublished - 2015

Fingerprint

Panel data analysis
Economic growth
Heterogeneous panels
Financial development
Short-run
Panel data
Error correction
Fixed effects model
Financial economics
Cross-sectional data

Keywords

  • Dynamic heterogeneous panels
  • Economic growth
  • Financial development
  • Island economy
  • PMG
  • Pooled mean group estimation

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

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abstract = "The purpose of this study is to find whether there is any significant impact, be it short run or long run, of financial development (FD) on economic growth from nine island economies. Despite the vast researches on the FD and economic growth nexus, little has been known from the perspective of island economies. Therefore, this study has attempted to analyse the dynamic relationship by incorporating both time series and cross-sectional data from the island economies over the period of 30 years (1980 to 2009). This study employed error correction-based pooled mean group (PMG), mean group (MG) and dynamic fixed effect (DFE) model for analysing dynamic heterogeneous panel data. Results from the PMG estimates demonstrate that financial development has a negative short run impact on economic growth. Whilst in the long run, there is a positive and a homogenous effect of financial development on growth across the island economy.",
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