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Linkages between Financial Development and Economic Growth in the Middle-Income Countries of South Asia: A Panel Data Investigation

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  • Rajesh Sharma
  • Pradeep Kautish

Abstract

The present study intends to investigate the impact of financial sector development on GDP growth in the four middle-income countries of South Asia over the period of 1990–2016. Using pooled mean group (PMG) estimation, this study tries to examine whether in these developing countries, GDP growth has been influenced by size of market capitalization and size of market turnover in the long run which are used as proxy for stock market development. Similarly, domestic credit to private sector is used as proxy for banking sector development while assessing its long-run impact on GDP growth. Furthermore, by incorporating a dummy variable for the global financial crisis (2007–2008), this study investigates whether these economies are vulnerable to external shocks or not. The outcomes of this study find that relatively, the impact of banking sector on GDP growth has remained low in the region. Nevertheless, the development in both sectors has positively influenced economic growth in the long run. The outcomes of this study suggest that both, i.e. stock market and banking sector, are vital determinants of long-run economic growth in the South Asian countries. Therefore, to achieve the sustainable growth, policymakers need to adopt the global approach which can be ensured by improving the quality and scope of financial services in these countries.

Suggested Citation

  • Rajesh Sharma & Pradeep Kautish, 2020. "Linkages between Financial Development and Economic Growth in the Middle-Income Countries of South Asia: A Panel Data Investigation," Vision, , vol. 24(2), pages 140-150, June.
    • Handle: RePEc:sae:vision:v:24:y:2020:i:2:p:140-150
    DOI: 10.1177/0972262920923908
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    6. Rishan Sampath Hewag & Jaafar Pyeman & Norashida Othman, 2023. "Effect of Structural Break on Financial Development and Economic Growth Nexus in Middle-Income Countries in Asia: Moderating Role of Technological Advancements," Information Management and Business Review, AMH International, vol. 15(2), pages 205-214.
    7. Anwar, Amar & Iwasaki, Ichiro, 2022. "The Finance–Growth Nexus inAsia : A Meta-Analytic Approach," CEI Working Paper Series 2022-03, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    8. IWASAKI, Ichiro & ONO, Shigeki, 2023. "Economic Development and the Finance-Growth Nexus : A Meta-Analytic Approach," CEI Working Paper Series 2023-06, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    9. Zhang, Rui & Sharma, Rajesh & Tan, Zhixiong & Kautish, Pradeep, 2022. "Do export diversification and stock market development drive carbon intensity? The role of renewable energy solutions in top carbon emitter countries," Renewable Energy, Elsevier, vol. 185(C), pages 1318-1328.
    10. Rajesh Sharma & Muhammad Shahbaz & Pradeep Kautish & Xuan Vinh Vo, 2023. "Diversified imports as catalysts for ecological footprint: examining the BRICS experience," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(4), pages 3153-3181, April.
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