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Financial sector development and growth in small open economies

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  • Sunday Iyare
  • Winston Moore

Abstract

This article investigates the Granger causal relationship between financial development and economic growth for four small open economies over the period 1960 to 2003. Both long- and short-run Granger causality tests are used to assess the finance-growth nexus. The results suggest that there is a positive association between financial development and growth in all countries. However, the long-run causality tests show that growth tends to lead financial development in Singapore and Jamaica, financial development leads growth in Trinidad and Tobago and there is a bidirectional link in Barbados. These results therefore suggest that cross-country studies could overstate the impact of financial development on growth, since they ignore differences - even in relatively homogenous groups.

Suggested Citation

  • Sunday Iyare & Winston Moore, 2011. "Financial sector development and growth in small open economies," Applied Economics, Taylor & Francis Journals, vol. 43(10), pages 1289-1297.
  • Handle: RePEc:taf:applec:v:43:y:2011:i:10:p:1289-1297 DOI: 10.1080/00036840802600350
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    Cited by:

    1. Morgan, Horatio M., 2013. "Financial Development and Economic Growth: New Lessons from Small Open Economies," MPRA Paper 49842, University Library of Munich, Germany.
    2. repec:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1142-0 is not listed on IDEAS
    3. 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.
    4. repec:bof:bofitp:urn:nbn:fi:bof-201505061169 is not listed on IDEAS
    5. Stolbov, Mikhail, 2015. "Causality between credit depth and economic growth: Evidence from 24 OECD countries," BOFIT Discussion Papers 15/2015, Bank of Finland, Institute for Economies in Transition.

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