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Financial Development, Technology And Economic Development: The Role Of Institutions In Developing Countries

Author

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  • SAMINA SABIR

    (University of Azad Jammu and Kashmir, Muzaffarabad, Azad Jammu and Kashmir, Pakistan)

  • RASHID LATIF

    (University of Azad Jammu and Kashmir, Muzaffarabad, Azad Jammu and Kashmir, Pakistan)

  • UNBREEN QAYYUM

    (#x2020;Pakistan Institute of Development Economics, Quaid-i-Azam University Campus, Islamabad, Islamabad Capital Territory 44000, Pakistan)

  • KAMRAN ABASS

    (University of Azad Jammu and Kashmir, Muzaffarabad, Azad Jammu and Kashmir, Pakistan)

Abstract

Financial sector development plays a pivotal role in the process of economic growth and development through mobilization of savings and creating investment opportunities. Financial development also increases the level of technology by providing finance to entrepreneurs for technological innovations which leads to economic growth. Moreover, financial markets develop rapidly in those countries which have strong legal system to enforce property rights, support private contractual arrangement and protect the rights of investors that can support real economic activities. Therefore, the presence of good quality institutions strengthens financial development which leads to technological development and growth. This study investigates the impact of financial development, technology and institutions on economic growth of selected developing countries over the time span of 1996–2015. This study extends the Augmented Solow growth model by incorporating variables such as financial development, technology, institutions and their interaction terms in the model. Due to endogeneity problem, the empirical model used in the study is estimated by System Generalized Method of Moments (System-GMM). Empirical results show that financial development, technology and institutions have very strong effects on the economic growth developing countries. To attain a sustainable economic growth, developing countries should develop their institutions which are necessary for the effective functioning of financial markets that stimulate economic growth by providing finance to entrepreneurs for innovations in technological sectors.

Suggested Citation

  • Samina Sabir & Rashid Latif & Unbreen Qayyum & Kamran Abass, 2019. "Financial Development, Technology And Economic Development: The Role Of Institutions In Developing Countries," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 14(03), pages 1-25, September.
    • Handle: RePEc:wsi:afexxx:v:14:y:2019:i:03:n:s201049521950012x
    DOI: 10.1142/S201049521950012X
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    Citations

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    Cited by:

    1. Clement Olalekan Olaniyi, 2022. "On the transmission mechanisms in the finance–growth nexus in Southern African countries: Does institution matter?," Economic Change and Restructuring, Springer, vol. 55(1), pages 153-191, February.
    2. Bisharat Hussain Chang & Khalil Ahmed Channa & Emmanuel Uche & Osamah Ibrahim Khalaf & Osamah Waheed Ali, 2022. "Analyzing the impacts of terrorism on innovation activity: A cross country empirical study," Advances in Decision Sciences, Asia University, Taiwan, vol. 26(Special), pages 124-161, December.

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