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Financial innovation and economic growth: Empirical evidence from China, India and Pakistan

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  • Muhammad Rizwan Nazir
  • Yong Tan
  • Muhammad Imran Nazir

Abstract

This study investigates the causal relationship between financial innovation and economic growth in China, India, and Pakistan over the period of 1970–2016. Using an Autoregressive Distributed Lag (ARDL) bound testing and Granger causality‐based Error Correction Model (ECM), this study finds that financial innovation generally has a positive and statistically significant impact on economic growth in the short‐run and long‐run. These results show that in the long‐run, monetary management and credit flow to the private sector play an essential role in economic growth. The trade openness and gross capital formation contribute considerably to the economic growth in China, India, and Pakistan. For robustness, this study also applies the Dynamic Ordinary Least Square (DOLS) and Fully Modified Ordinary Least Square (FMOLS) method. The findings of this study suggest that the financial sector plays an essential role in supporting innovation activity in Asian countries.

Suggested Citation

  • Muhammad Rizwan Nazir & Yong Tan & Muhammad Imran Nazir, 2021. "Financial innovation and economic growth: Empirical evidence from China, India and Pakistan," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6036-6059, October.
    • Handle: RePEc:wly:ijfiec:v:26:y:2021:i:4:p:6036-6059
    DOI: 10.1002/ijfe.2107
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    2. Yu Huan & Md. Qamruzzaman, 2022. "Innovation-Led FDI Sustainability: Clarifying the Nexus between Financial Innovation, Technological Innovation, Environmental Innovation, and FDI in the BRIC Nations," Sustainability, MDPI, vol. 14(23), pages 1-26, November.
    3. Mustansar, Talreja, 2023. "Financial innovation, technological improvement and bank’ profitability," OSF Preprints 8wy95, Center for Open Science.
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    6. Anwar, Amar & Iwasaki, Ichiro, 2022. "The Finance–Growth Nexus inAsia : A Meta-Analytic Approach," CEI Working Paper Series 2022-03, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    7. Adnan Ali & Suresh Ramakrishnan & Faisal Faisal & Zahir Ullah, 2023. "Bibliometric analysis of global research trends on microfinance institutions and microfinance: Suggesting new research agendas," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3552-3573, October.

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