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A Nonparametric Model Of Financial System-Economic Growth Nexus

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  • Sagarika Mishra
  • Paresh Kumar Narayan

    ()

Abstract

In this paper we examine a familiar topic in financial economics: the financial system-economic growth nexus. However, we depart from the extant literature in the sense that we empirically show that proposed models and variables are nonparametric, implying that the use of estimation techniques that assume a linear data generating process are questionable. We, thus, use a nonparametric panel data model to estimate the financial-economic growth relationship. We find that the banking sector shows a greater case of a statistically significant positive effect on GDP: for example, domestic credit and private credit both have a statistically significant positive effect on GDP in six of the seven panels. On the other hand, the evidence from the stock market suggests relatively less cases of a statistically significant positive effect on GDP: for only four panels in the case of market capitalization and two panels in the case of stocks traded.

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File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2010_12.pdf
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Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2010_12.

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Date of creation: 16 Jul 2010
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Handle: RePEc:dkn:econwp:eco_2010_12

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  1. De Long, J Bradford, et al, 1989. " The Size and Incidence of the Losses from Noise Trading," Journal of Finance, American Finance Association, vol. 44(3), pages 681-96, July.
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