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Financial Development and Economic Growth in Sri Lanka

Author

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  • Perera, N.

    ()

  • Paudel, R.C.

Abstract

This study investigates the causal relationship between financial development and economic growth in Sri Lanka over the period 1955 to 2005. After considering the time series characteristics of six measures of financial development, Johansen cointegration and the appropriate Error Correction Model are used to investigate the causal relationship between financial development and economic growth. The findings suggest that broad money causes economic growth with two-way causality. The major finding of this study does not strongly support the view that financial development boosts economic growth.

Suggested Citation

  • Perera, N. & Paudel, R.C., 2009. "Financial Development and Economic Growth in Sri Lanka," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(1).
  • Handle: RePEc:eaa:aeinde:v:9:y:2009:i:1_14
    as

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    References listed on IDEAS

    as
    1. Ahmed, S. M. & Ansari, M. I., 1998. "Financial sector development and economic growth: The South-Asian experience," Journal of Asian Economics, Elsevier, pages 503-517.
    2. Khan, Aubhik, 2001. "Financial Development And Economic Growth," Macroeconomic Dynamics, Cambridge University Press, pages 413-433.
    3. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, pages 688-726.
    4. Felix Rioja & Neven Valev, 2004. "Finance and the Sources of Growth at Various Stages of Economic Development," Economic Inquiry, Western Economic Association International, vol. 42(1), pages 127-140, January.
    5. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, pages 513-542.
    6. Khan, Aubhik, 2001. "Financial Development And Economic Growth," Macroeconomic Dynamics, Cambridge University Press, pages 413-433.
    7. Panicos O. Demetriades & Kul B. Luintel, 1997. "The Direct Costs Of Financial Repression: Evidence From India," The Review of Economics and Statistics, MIT Press, pages 311-320.
    8. Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633.
    9. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, pages 688-726.
    10. Christopoulos, Dimitris K. & Tsionas, Efthymios G., 2004. "Financial development and economic growth: evidence from panel unit root and cointegration tests," Journal of Development Economics, Elsevier, pages 55-74.
    11. Zsolt Becsi & Ping Wang, 1997. "Financial development and growth," Economic Review, Federal Reserve Bank of Atlanta, pages 46-62.
    12. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, pages 387-411.
    13. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, pages 3-42.
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    Citations

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    Cited by:

    1. Muhammad Shahbaz & Ijaz Ur Rehman & Ahmed Taneem Muzaffar, 2015. "Re-Visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in Bangladesh," South African Journal of Economics, Economic Society of South Africa, pages 452-471.
    2. Leyla Yusifzada & Aytan Mammadova, 2015. "Financial intermediation and economic growth," William Davidson Institute Working Papers Series wp1091, William Davidson Institute at the University of Michigan.
    3. M. Sani,, Nur Fatin Najwa & Ismail, Fathiyah & W. Mahmood, Wan Mansor, 2014. "Causal relationship between financial depth and economic growth: evidence from Asia-Pacific Countries," MPRA Paper 62188, University Library of Munich, Germany.
    4. Anwar, Sajid & Cooray, Arusha, 2012. "Financial development, political rights, civil liberties and economic growth: Evidence from South Asia," Economic Modelling, Elsevier, vol. 29(3), pages 974-981.
    5. repec:ipg:wpaper:2014-485 is not listed on IDEAS
    6. repec:rss:jnljee:v4i5p3 is not listed on IDEAS
    7. repec:asi:ajoerj:2013:p:752-762 is not listed on IDEAS
    8. Mohammed Ziaur Rehman & Nasir Ali & Najeeb Muhammad Nasir, 2015. "Financial Development, Savings and Economic Growth: Evidence from Bahrain Using VAR," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 6(2), pages 112-123, April.
    9. Kumar, Ronald Ravinesh & Stauvermann, Peter Josef & Loganathan, Nanthakumar & Kumar, Radika Devi, 2015. "Exploring the role of energy, trade and financial development in explaining economic growth in South Africa: A revisit," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 1300-1311.
    10. Polat, Ali & Shahbaz, Muhammad & Ur Rehman, Ijaz & Satti, Saqlain Latif, 2013. "Revisiting Linkages between Financial Development, Trade Openness and Economic Growth in South Africa: Fresh Evidence from Combined Cointegration Test," MPRA Paper 51724, University Library of Munich, Germany, revised 25 Nov 2013.

    More about this item

    Keywords

    Financial Development; Economic Growth; Sri Lanka; Cointegration test;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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