Analyzing the effect of financial development on economic growth – the Jordanian experience
-
Author(s)Izz Eddien N. AnanzehLink to ORCID Index: https://orcid.org/0000-0003-0567-8518
,
Mohammad D. Othman
-
DOIhttp://dx.doi.org/10.21511/imfi.16(1).2019.09
-
Article InfoVolume 16 2019, Issue #1, pp. 119-127
- Cited by
- 2106 Views
-
167 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study came to inspect the impact of the development of both financial market and banking system on the economic growth of Jordan based on the annual data covering the period 1993–2017. Through the use of many methodologies: Johansen cointegration test, (VECM), and Granger causality test, where real GDP was used as an indicator of economic growth, the real market value of stocks (Market Capitalization) (LCAP) and Share Turnover (LTURN) are indicators for the financial market, Money supply in the broad concept (LM2), and Local domestic credit (LCR) are indicators for the banking sector.
The results of this study reported that the study variables are stationary, and in the level of order 2, they are integrated, and a long-run relationship between the study variables existed according to the Johansen co-integration test. VECM model result and the target model result confirm a short-run causality running from the all variables toward GDP. Granger causality test underline a single directional causality running from variables of our study to GDP and denote the short-run impact between LCAP, LTURN, LM2, LCR, and LGDP. The analysis of the variance decomposition shows that the development of the banking system affects economic growth almost equally with the impact of the development of the financial market. The results go to the same line of supply-leading hypothesis.
- Keywords
-
JEL Classification (Paper profile tab)G17, G18, E44
-
References28
-
Tables9
-
Figures0
-
- Table 1. Unit root tests results
- Table 2. The lag length selection criterion
- Table 3A. Trace test
- Table 3B. Maximum Eigenvalue test
- Table 4. The co-integration equation results
- Table 5A. The results of VECM
- Table 5B. Target model estimation
- Table 6. Granger causality test results
- Table 7. VD of LGDP results
-
- Adusei, M. (2013). Financial Development and Economic Growth: Evidence from Ghana. The International Journal of Business and Finance Research, 7(5), 61-76.
- Ananzeh, I. E. (2016). Relationship Between Bank Credit and Economic Growth: Evidence from Jordan. International Journal of Financial Research, 7(2), 53-63.
- Al-Zararee, A. N., & Ananzeh, I. E. N. (2014). The Relationship between Macroeconomic Variables and Stock Market Returns: A Case of Jordan for the Period 1993–2013. International Journal of Business and Social Science, 5(5), 186-194.
- Bagehot, W. (1873) (1962 edition). Lombard Street. Richard D. Irwin, Homewood, IL.
- Beck, T., & Levine, R. (2004). Stock Markets, Banks, and Growth. Journal of Banking & Finance, 28(3), 423-442.
- Calderón, C., & Liu, L. (2003). The direction of causality between financial development and economic growth. Journal of Development Economics, 72(1), 321-334.
- Caporale, M. G., Raul, C., Sova, R., & Sova, A. (2009). Financial development and economic growth. Evidence from ten new EU members (Working paper no. 09-37).
- Cheng, X., & Degryse, H. (2010). The impact of bank and non-bank financial institutions on local economic growth in China. Journal of Financial Services Research, 37(2-3), 179-199.
- Darrat, A. (1999). Are Financial Deepening and Economic Growth Causally Related? Another Look at the Evidence. International Economic Journal, 13(3), 19-35.
- Engle, R. F., & Granger, C. W. J. (1987). Co-Integration and Error Correction: Representative, Estimation and Testing. Econometrica, 55(2), 251-276.
- Greenwood, J., & Jovanovic, B. (1990). Financial Development, Growth, and the Distribution of Income. Journal of Political Economy, 98(5), 1076-1107.
- Greenwood et al. (2013). Quantifying the impact of financial development on economic development. Review of Economic Dynamics, 16, 194-215.
- Goldsmith, R. W. (1969). Financial Structure and Development. Yale University Press, New Haven, CT.
- Gupta, K. L. (1984). Finance and Economic Growth in Developing countries. Croom Helm Ltd. Provident House, Great Britain.
- Gujarati, D. N. (2003). Basic econometrics (4th ed.). McGraw-Hill, Boston.
- Johansen, S. (1995). Likelihood-Based Inference in Cointegrated Vector Autoregressive Models. Oxford: Oxford University Press.
- Khan, M. S., & Senhadji, A. S. (2000). Financial Development and Economic Growth: An Overview (IMF Working Paper, no.00/209).
- King, R. G., & Levine, R. (1993a). Finance and Growth: Schumpeter Might Be Right. Quarterly Journal of Economics, 108(3), 717-737.
- King, R. G., & Levine, R. (1993b). Finance, entrepreneurship, and growth: Theory and evidence (Working paper). World Bank, Washington, DC.
- Koivu, T. (2002). Do Efficient Banking Sectors Accelerate Economic Growth in Transition Countries? BOFIT Discussion Papers, 14, 1-28.
- Levine, R., & Zervos, S. (1996). Stock Market Development and Long-Run Growth. The World Bank Economic Review, 10(2), 323-339.
- McKinnon, R. I. (1973). Money and Capital in Economic Development. Brookings Institution, Washington, DC.
- Patrick, H. (1966). Financial development and economic growth in underdeveloped countries. Economic Development Cultural Change, 14(2), 174-189.
- Pesaran, M., & Shin, Y. (1999). An Autoregressive Lag Modeling Approach to Cointegration Analysis. In S. Strom (Ed.), Econometrics and Economic Theory in 20th Century. The Ragnar Frisch centennial Symposium, Cambridge University Press, Cambridge.
- Robinson, J. (1952). The generalization of the general theory. In The Rate of Interest and Other Essays. MacMillan, London.
- Shaw, E. (1973). Financial Deepening in Economic Development. New York: Oxford University Press.
- Schumpeter, J. (1911). The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and Business Cycle. Cambridge Mass, Harvard University Press.
- Yang, Y. Y., & Yi, M. H. (2008). Does Financial Development Cause Economic Growth? Journal of Policy Modeling, 30(5), 827-840.
-
Impact on poverty and income inequality in Malaysia’s economic growth
Rabiul Islam 
,
Ahmad Bashawir Abdul Ghani ,
Irwanshah Zainal Abidin ,
Jeya Malar Rayaiappan
doi: http://dx.doi.org/10.21511/ppm.15(1).2017.05
Problems and Perspectives in Management Volume 15, 2017 Issue #1 pp. 55-62 Views: 11918 Downloads: 5693 TO CITE АНОТАЦІЯPoverty and income inequality are extreme issues that still exist in Malaysia. Any rise in poverty and income inequality definitely affect economic growth. There are many great efforts taken by the government of Malaysia to eradicate poverty and to reduce the gap of income inequality which occurs since 1970’s. The incidence of poverty and income inequality is higher in rural areas compared to urban areas. This paper is mainly to study the level of poverty and income inequality in Malaysia together with government intervention to develop Malaysia’s economic growth. The research is focused among the working people at Ipoh, Perak. In this paper, questionnaire forms are being distributed to get information regarding the issue of poverty and income inequality. It also looks into the strategies taken by the government of Malaysia to eradicate poverty and income inequality. Few recommendations are given in terms of education policy, financial aid and assistance from government and non-government organization (NGO) to upgrade the standard and quality of living among the poor and lower-income group of people.
-
Impact of inflation on economic growth: evidence from Nigeria
Anthony Olugbenga Adaramola ,
Oluwabunmi Dada
doi: http://dx.doi.org/10.21511/imfi.17(2).2020.01
Investment Management and Financial Innovations Volume 17, 2020 Issue #2 pp. 1-13 Views: 9142 Downloads: 5471 TO CITE АНОТАЦІЯIn an attempt to examine the influence of inflation on the growth prospects of the Nigerian economy, the study employs the autoregressive distributed lag on the selected variables, i.e. real gross domestic product (GDP), inflation rate, interest rate, exchange rate, degree of economy`s openness, money supply, and government consumption expenditures for the period 1980–2018. The study findings indicate that inflation and real exchange rate exert a significant negative impact on economic growth, while interest rate and money supply indicate a positive and significant impact on economic growth. Other variables in the model depict no influence on the economic growth of Nigeria. The causality result shows the unidirectional relationships between interest rate, exchange rate, government consumption expenditures and gross domestic product. However, inflation and the degree of openness show no causal relationship with gross domestic product. As a result, the study recommends that a more pragmatic effort is needed by the monetary authorities to target the inflation vigorously to prevent its adverse effect by ensuring a tolerable rate that would stimulate the economic growth of Nigeria.
-
Formalization of the impact of imbalances in the movement of financial resources on economic growth of countries in Central and Eastern Europe
Serhiy Kozmenko ,
Maxim Korneyev
doi: http://dx.doi.org/10.21511/afc.01(1).2017.06
Accounting and Financial Control Volume 1, 2017 Issue #1 pp. 48-58 Views: 7876 Downloads: 1375 TO CITEThe article deals with the impact of financialization on economic growth in countries of Central and Eastern Europe. It determinesthe impact of imbalances in the movement of financial resources caused by financialization on economic growth of these countries. It proves that the implementation of measures aimed at increasing the openness of the economy and maintaining solvent demand have a positive impact on economic growth of the surveyed countries in the long run. It also proves the importance of developing a set of measures of strategic nature regulating imbalances in the movement of financial resources caused by financialization.
