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An Overview On The Relationship Between Financial Development And Economic Growth

Author

Listed:
  • Rishan Sampath Hewage
  • Jaafar Pyeman
  • Norashida Othman
  • Norsariah Binti Abdul Rahman
  • Shahsuzan Zakaria

Abstract

Identifying the Financial Development (FD) and Economic Growth (EG) nexus has received considerable attention in both theoretical and empirical literature for many years. Empirically, many scholars argue financial sector plays a vital role in an economy and consider as one of the significant macroeconomic variables which decide the direction of the economic development of a country. Theoretically, the FD leads to identifying better investment opportunities, boosts innovation, enhances the efficiency of capital markets, and improves the risk-taking capacity of investors that eventually directing to a more efficient allocation of resources to the real sector. However, the findings in previous scholarly works are vague and inconclusive. Therefore, this study attempts to do an in-depth analysis of key theories, concepts, and the methodological limitations of the previous studies to measure the validity of FD and EG nexus from an empirical and theoretical perspective. The results of this paper enlighten the new research pathway and direct the policymakers to architect the country's fiscal policies and development strategies to achieve sustainable economic development goals.

Suggested Citation

  • Rishan Sampath Hewage & Jaafar Pyeman & Norashida Othman & Norsariah Binti Abdul Rahman & Shahsuzan Zakaria, 2022. "An Overview On The Relationship Between Financial Development And Economic Growth," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 13(1), pages 63-77.
    • Handle: RePEc:ibf:rbfstu:v:13:y:2022:i:1:p:63-77
    as

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    References listed on IDEAS

    as
    1. Diego Comin & Ramana Nanda, 2019. "Financial Development and Technology Diffusion," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(2), pages 395-419, June.
    2. Stephen Cecchetti & Enisse Kharroubi, 2012. "Reassessing the impact of finance on growth," BIS Working Papers 381, Bank for International Settlements.
    3. Demetriades, Panicos O. & Rousseau, Peter L., 2016. "The changing face of financial development," Economics Letters, Elsevier, vol. 141(C), pages 87-90.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Economic Growth; Financial Development; Asian Region;
    All these keywords.

    JEL classification:

    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology

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