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Financial deepening and economic growth in Gulf Cooperation Council countries

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  • HAMDI, Helmi
  • SBIA, Rashid
  • TAS, Bedri

Abstract

The aim of this paper is to investigate the causal relationship between financial development and economic growth in GCC countries for the period 1980-2010. To this end we use a multivariate vector autoregressive (VAR) framework by including investment as an additional variable to the finance and growth nexus. Our empirical analysis is based on a modified version of the Granger non-causality test by applying the Toda and Yamamoto procedure. The overall empirical results reveal that financial development contributes significantly to economic growth in the GCC context. Our results could be of great interest for policymakers since the financial sector could play a crucial role in lowering the dependence of the governments to oil revenues and could contribute significantly to spur economic growth.

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File URL: http://mpra.ub.uni-muenchen.de/49907/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 49907.

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Date of creation: 2012
Date of revision: 2012
Handle: RePEc:pra:mprapa:49907

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Related research

Keywords: GCC; Finance-growth nexus; Toda-Yamamoto Causality;

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  1. Wolde-Rufael, Yemane, 2009. "Re-examining the financial development and economic growth nexus in Kenya," Economic Modelling, Elsevier, Elsevier, vol. 26(6), pages 1140-1146, November.
  2. James B. Ang, 2008. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 22(3), pages 536-576, 07.
  3. Johansen, Soren, 1992. "Testing weak exogeneity and the order of cointegration in UK money demand data," Journal of Policy Modeling, Elsevier, Elsevier, vol. 14(3), pages 313-334, June.
  4. Loesse Jacques Esso, 2010. "Re-Examining The Finance-Growth Nexus: Structural Break, Threshold Cointegration And Causality Evidence From The Ecowas," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, Chung-Ang Unviersity, Department of Economics, vol. 35(3), pages 57-79, September.
  5. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, Elsevier, vol. 51(2), pages 387-411, December.
  6. World Bank, 2010. "World Development Indicators 2010," World Bank Publications, The World Bank, number 4373, August.
  7. Beck, T.H.L. & Levine, R. & Loayza, N., 2000. "Finance and the sources of growth," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-3125520, Tilburg University.
  8. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, Elsevier, vol. 16(1), pages 121-130, May.
  9. Luintel, Kul B. & Khan, Mosahid, 1999. "A quantitative reassessment of the finance-growth nexus: evidence from a multivariate VAR," Journal of Development Economics, Elsevier, Elsevier, vol. 60(2), pages 381-405, December.
  10. Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000. "Financial intermediation and growth: Causality and causes," Journal of Monetary Economics, Elsevier, Elsevier, vol. 46(1), pages 31-77, August.
  11. Bangake, Chrysost & Eggoh, Jude C., 2011. "Further evidence on finance-growth causality: A panel data analysis," Economic Systems, Elsevier, Elsevier, vol. 35(2), pages 176-188, June.
  12. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(3), pages 717-37, August.
  13. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, Elsevier, vol. 66(1-2), pages 225-250.
  14. Nicholas Odhiambo, 2010. "Finance-investment-growth nexus in South Africa: an ARDL-bounds testing procedure," Economic Change and Restructuring, Springer, Springer, vol. 43(3), pages 205-219, August.
  15. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(3), pages 513-542, December.
  16. César Calderón & Lin Liu, 2002. "The Direction of Causality Between Financial Development and Economic Growth," Working Papers Central Bank of Chile, Central Bank of Chile 184, Central Bank of Chile.
  17. Liang, Qi & Teng, Jian-Zhou, 2006. "Financial development and economic growth: Evidence from China," China Economic Review, Elsevier, Elsevier, vol. 17(4), pages 395-411.
  18. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 1057-72, June.
  19. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
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