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Bank-based financial development and economic growth

Author

Listed:
  • Sheilla Nyasha
  • Nicholas M Odhiambo

Abstract

Purpose - – The purpose of this paper was to survey the existing literature on the causal relationship between bank-based financial development and economic growth, highlighting the theoretical and empirical evidence from recent work. Although some previous studies have attempted to conduct a survey of the existing research on the finance-growth nexus, the majority of these studies have failed to distinguish between bank-based and market-based financial developments. To our knowledge, this may be the first study of its kind to survey the existing research on the causal relationship between bank-based financial development and economic growth – in both developed and developing countries. Design/methodology/approach - – Overall, our study shows that most of the literature reviewed in this paper either supports bidirectional causality between bank-based financial development and economic growth or reinforces the conventional supply-leading response phenomenon. Notwithstanding this outcome, the study also finds the literature in favour of a demand-following response to be increasing – in both number and substance – especially in recent years. Findings - – The paper, therefore, concludes that the causal relationship between financial development and economic growth is not clear-cut and that the notion that financial development automatically leads to economic growth is merely based onprima facieor superficial evidence. Originality/value - – Although some previous studies have attempted to conduct a survey of the existing research on the finance-growth nexus, the majority of these studies have failed to distinguish between bank-based and market-based financial developments. To our knowledge, this may be the first study of its kind to survey the existing research on the causal relationship between bank-based financial development and economic growth – in both developed and developing countries.

Suggested Citation

  • Sheilla Nyasha & Nicholas M Odhiambo, 2014. "Bank-based financial development and economic growth," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 6(2), pages 112-132, May.
    • Handle: RePEc:eme:jfeppp:v:6:y:2014:i:2:p:112-132
    DOI: 10.1108/JFEP-07-2013-0031
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    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:

    1. repec:zbw:bofitp:2015_015 is not listed on IDEAS
    2. Tongurai, Jittima & Vithessonthi, Chaiporn, 2018. "The impact of the banking sector on economic structure and growth," International Review of Financial Analysis, Elsevier, vol. 56(C), pages 193-207.
    3. Mikhail Stolbov, 2017. "Causality between credit depth and economic growth: evidence from 24 OECD countries," Empirical Economics, Springer, vol. 53(2), pages 493-524, September.
    4. Musakwa, Mercy T & Odhiambo, Nicholas M, 2022. "Does tourism influence financial development in Kenya?," Working Papers 29228, University of South Africa, Department of Economics.
    5. repec:zbw:bofitp:urn:nbn:fi:bof-201505061169 is not listed on IDEAS
    6. Sheilla Nyasha & Nicholas M. Odhiambo & Mercy T. Musakwa, 2021. "The Impact of Stock Market Development on Unemployment: Empirical Evidence from South Africa," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 71(1-2), pages 92-110, January-J.
    7. Mikhail Stolbov, 2017. "Causality between credit depth and economic growth: evidence from 24 OECD countries," Empirical Economics, Springer, vol. 53(2), pages 493-524, September.
    8. Masiak, Christian & Moritz, Alexandra & Lang, Frank, 2017. "Financing Patterns of European SMEs Revisited: An Updated Empirical Taxonomy and Determinants of SME Financing Clusters," EIF Working Paper Series 2017/40, European Investment Fund (EIF).
    9. Cristian Valeriu Paun & Radu Cristian Musetescu & Vladimir Mihai Topan & Dan Constantin Danuletiu, 2019. "The Impact of Financial Sector Development and Sophistication on Sustainable Economic Growth," Sustainability, MDPI, vol. 11(6), pages 1-21, March.
    10. repec:bof:bofitp:urn:nbn:fi:bof-201505061169 is not listed on IDEAS
    11. Amira Akl Ahmed, 2018. "Bank-Based Financial Development and Economic Growth: Time-Varying Causality Analysis for Egypt," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(4), pages 123-135, April.

    More about this item

    Keywords

    Economic growth; Causality; Bank-based financial development; Supply-leading; Demand-following; Bi-directional; G20; A12;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines

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