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Finance and Macroeconomic Performance. Some Evidence for Emerging Markets

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  • Ali F. Darrat
  • Khaled Elkhal
  • Brent McCallum

Abstract

This paper examines whether financial-sector development in several emerging markets affects their real economic activity. Results from cointegration and error correction models suggest that financial deepening (alternatively measured) exerts a robust longterm stimulating effect on real economic activity (both overall and sectoral) in all countries examined. However, short-term effects of financial deepening prove generally nonexistent, or tenuous at best. The results suggest that improving the structure and operation of the financial sector in emerging markets does stimulate real growth, but only if such improvement persists over a prolonged period of time.

Suggested Citation

  • Ali F. Darrat & Khaled Elkhal & Brent McCallum, 2006. "Finance and Macroeconomic Performance. Some Evidence for Emerging Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 42(3), pages 5-28, May.
    • Handle: RePEc:mes:emfitr:v:42:y:2006:i:3:p:5-28
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    Citations

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    Cited by:

    1. Li, Yuan & Ran, Jimmy, 2020. "Investor Sentiment and Stock Price Premium Validation with Siamese Twins from China," Journal of Multinational Financial Management, Elsevier, vol. 57.
    2. Chengsi Zhang & Yueteng Zhu, 2020. "The interest group theory of financial development in China: Openness and the role of interest groups," The World Economy, Wiley Blackwell, vol. 43(4), pages 982-999, April.
    3. Pradhan, Rudra P. & Arvin, Mak B. & Norman, Neville R., 2015. "Insurance development and the finance-growth nexus: Evidence from 34 OECD countries," Journal of Multinational Financial Management, Elsevier, vol. 31(C), pages 1-22.
    4. Muhammad Arshad Khan & Abdul Qayyum, 2006. "Trade Liberalisation, Financial Sector Reforms, and Growth," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(4), pages 711-731.
    5. Oliver Gloede & Ornsiri Rungruxsirivorn, 2013. "Local Financial Development and Household Welfare: Microevidence from Thai Households," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(4), pages 22-45, July.
    6. Mohammed Ahmed, Abdullahi, 2019. "China’s Bilateral Currency Swap Agreement: Strategic Move to Foster Political and Financial Hegemony," MPRA Paper 109879, University Library of Munich, Germany, revised 08 Oct 2019.
    7. Pradhan, Rudra & Arvin, Mak & Norman, Neville & Bahmani, Sahar, 2020. "The dynamics of bondmarket development, stockmarket development and economic growth: Evidence from the G-20 countries," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 25(49), pages 119-147.
    8. Pradhan, Rudra P. & Arvin, Mak B. & Ghoshray, Atanu, 2015. "The dynamics of economic growth, oil prices, stock market depth, and other macroeconomic variables: Evidence from the G-20 countries," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 84-95.
    9. Rudra P. Pradhan & Mak B. Arvin & Neville R. Norman & John H. Hall, 2014. "The dynamics of banking sector and stock market maturity and the performance of Asian economies," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 30(1), pages 16-44, May.
    10. Rudra P. Pradhan & Mak B. Arvin & Mahendhiran S. Nair & John H. Hall, 2022. "The dynamics between financial market development, taxation propensity, and economic growth: a study of OECD and non-OECD countries," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(3), pages 1503-1534, June.
    11. Zhang, Chengsi & Zhu, Yueteng & Lu, Zhe, 2015. "Trade openness, financial openness, and financial development in China," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 287-309.
    12. Pradhan, Rudra P. & Arvin, Mak B. & Bahmani, Sahar, 2015. "Causal nexus between economic growth, inflation, and stock market development: The case of OECD countries," Global Finance Journal, Elsevier, vol. 27(C), pages 98-111.
    13. Mohammad Enamul Hoque & Noor Azuddin Yakob, 2017. "Revisiting stock market development and economic growth nexus: The moderating role of foreign capital inflows and exchange rates," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1329975-132, January.
    14. Yuan Li & Yu Zhang, 2021. "Investor Sentiment, Idiosyncratic Risk, and Stock Price Premium: Evidence From Chinese Cross-Listed Companies," SAGE Open, , vol. 11(2), pages 21582440211, June.
    15. Bojan Nastav & Štefan Bojnec, 2008. "Small Businesses and the Shadow Economy," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(01-02), pages 68-81, January.
    16. Fu, Junhui & Liu, Yufang & Chen, Rongda & Yu, Xiaojian & Tang, Wen, 2020. "Trade openness, internet finance development and banking sector development in China," Economic Modelling, Elsevier, vol. 91(C), pages 670-678.
    17. Pradhan, Rudra P. & Arvin, Mak B. & Bahmani, Sahar & Hall, John H. & Norman, Neville R., 2017. "Finance and growth: Evidence from the ARF countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 136-148.
    18. Mohammed Ahmed, Abdullahi, 2019. "Financial Development and Central Bank Bilateral Currency Swaps: Is there Trade Effect?," MPRA Paper 109875, University Library of Munich, Germany, revised 05 Aug 2019.
    19. Rudra P. Pradhan & Mak B. Arvin & John H. Hall & Sahar Bahmani, 2014. "Causal nexus between economic growth, banking sector development, stock market development, and other macroeconomic variables: The case of ASEAN countries," Review of Financial Economics, John Wiley & Sons, vol. 23(4), pages 155-173, November.
    20. Rudra P. Pradhan & Mak B. Arvin & Neville R. Norman & Sara E. Bennett, 2016. "Financial depth, internet penetration rates and economic growth: country-panel evidence," Applied Economics, Taylor & Francis Journals, vol. 48(4), pages 331-343, January.
    21. Marcelin, Isaac & Mathur, Ike, 2016. "Financial sector development and dollarization in emerging economies," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 20-32.
    22. Yum K. Kwan & Jinyue Dong, 2014. "Stock Price Dynamics of China: What Do the Asset Markets Tell Us About the Chinese Utility Function?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(03), pages 77-108, May.
    23. Rudra P. Pradhan & Mak B. Arvin & John H. Hall, 2019. "The Nexus Between Economic Growth, Stock Market Depth, Trade Openness, And Foreign Direct Investment: The Case Of Asean Countries," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(03), pages 461-493, June.

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