Financial Development and

Economic Growth
Dr. Normaz Wana Ismail
Macroeconomic 1

 Tan Chia Tee (GS30797)

 Tan Boon Hui (GS31017)
 Shah Badri Bin Mohd Nor (GS30460)
 Seyed Hadi Hashemi (GS30992)
1. Introduction

2. Summary of core Article

3. Supporting articles

4. Non Supporting articles

5. Conclusion
Introduction:
Schumpeter (1911)

Financial Development

Indicators such as:

1) M2/GDP

2) Stock market capitalization/GDP

 Summary of core article
Philip and Panicos (1997) examine empirical evidence from 2
angles.
1. what extent the financial system can contribute to the process
of economic growth.
1) logarithm of real GDP per capita (LY)
2) stock market capitalization ratio (LMC)
3) index of stock market volatility (LSMV)

4)
United State: logarithm of the ratio of domestic bank credit to nominal GDP
Germany: logarithm of the ratio of M2 to nominal GDP
Germany uni-directional causality from financial
development to real GDP

United State not enough evidence to suggest that

financial development causes real GDP
2. stimulation of financial liberalization on investment and
growth.

South Korea repression index has a positive effect

on financial development, independently of the real
interest rate which has a small positive effect.
Repression have worked positively on Growth
 Supporting article
Deb & Mukherjee (2008) : India
Mentioned the importance of stock markets development and its
causal linkage with economic growth.
Result showed a unidirectional causality from both stocks market
activity and vitality to real GDP growth in India economic

Nur Azura Samuri & Norlida hanim Salleh : Malaysia

• Interested in study of long run relationship. They applied
time series method to estimate their model.
• The result suggested M2 and CR has positive long run
impact on economic growth and for DP has negative long
run impact
Rufael (2009): Kenya
The author run the test for financial development and economic
growth by using four proxies.
The 3 out of 4 proxies found bidirectional causality running between
financial development and economic growth except the broad money
and money supply.

Adnan Hye & Dolqopolova(2011) : China

• Their test to evaluate the importance of each financial
indicator development index.
• The author finding conclude that positive relationship exist
between economic growth, financial development index, real
interest rate, capital and labor force.
Acaravci, ozturk and Acaravci(2007) : Turkey

The author used domestic credit provided by banking sector as the

financial development.
The result indicate there is no long run relationship between
financial development and economic growth.
For the short run the result only showed unidirectional
relationship where financial development caused economic
growth
Apergis, Filippidis, and Economidou(2007)

The result supported the financial development statistically

significant to the economic growth.
They mentioned that the policies aiming at improving financial
markets and their functions will have in a long run. This give a
significance effect on economic growth.
 Non Supporting Article
Adnan Hye (2011) : India

This study construct financial development index (FDI) for

India. The author use time series method to test either the
financial development bring crises or growth.
The result showed that financial development negatively
associated with economic growth
Kar, Nazlioglu & Agir(2011)

• The author obtained different result compare to previous panel data

study.
• By using SURE method and the result does not provide strong
evidence supporting the view of financial development is an
important determinant of the economic growth in MENA countries
 Conclusion
There is lot of empirical evidence have showed financial
development is correlated with and perhaps improve economic.
From discussion above, we can see that panel data is indeed a
good method to analyze the appropriate relationship.
Although there are a number of papers in financial
development and economic growth, there is still a vast area
financial system which seem to be promising avenue for future
research.
Thanks