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Financial development and economic growth in developing economies: empirical evidence from the Caribbean

Author

Listed:
  • Sunday Osaretin Iyare

    (Department of Economics, University of the West Indies)

  • Troy Lorde

    (Department of Economics, University of the West Indies)

  • Brian Francis

    (Department of Economics, University of the West Indies)

Abstract

This paper uses a VAR and VECM framework to examine whether financial development causes growth or vice-versa employing aggregate annual time-series data on Barbados, Grenada, Jamaica, St. Lucia, St. Vincent and the Grenadines and Trinidad and Tobago. The results indicate that a long-run equilibrium relationship between financial development and economic growth exists only in Trinidad and Tobago and the response is bi-directional, lending support to both the denand-following and supply-leading hypothesis. Second, where there is only evidence of a short-run relationship, the results are mixed. Sometimes the causal link is from economic growth to financial development and on other occasions from financial development to economic growth. Third, our findings show that results are country specific and tend to vary with the kind of proxies used to measure financial development.

Suggested Citation

  • Sunday Osaretin Iyare & Troy Lorde & Brian Francis, 2005. "Financial development and economic growth in developing economies: empirical evidence from the Caribbean," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 8(2), pages 168-184, Winter.
  • Handle: RePEc:ekn:ekonom:v:8:y:2005:i:2:p:168-184
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    References listed on IDEAS

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    Cited by:

    1. Butkiewicz, James L. & Gordon, Leo-Rey C., 2013. "The Economic Growth Effect of Offshore Banking in Host Territories: Evidence from the Caribbean," World Development, Elsevier, vol. 44(C), pages 165-179.

    More about this item

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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