Financial Development Dynamics Research Articles

The dynamics of natural resources, renewable energy, and financial development on achieving ecological sustainability

Environmental sustainability has emerged as a paramount concern on the global agenda. Following the Paris Agreement and COP26, a strong global commitment exists to reducing its environmental footprint. This study examines the impact of non-renewable energy consumption and economic growth on ecological integrity from 1980 to 2021 b y employing the Autoregressive Distributed Lag (ARDL), Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) methodologies. Causality tests were also performed to understand the interrelationships among the variables, complemented by various pre-estimation tests to address potential data structure limitations. The findings highlight a dual impact on ecological integrity. While economic growth and the consumption of fossil fuels significantly worsen ecological degradation, the presence of natural resources benefits environmental quality. Intriguingly, it was revealed that both financial development and renewable energy consumption do not notably influence carbon dioxide emissions. This result is further validated by Granger causality tests, which align with the conclusions derived from the ARDL outcomes. Based on these detailed results, the study proposes targeted policy recommendations for Indonesia to encourage sustainable development practices that mitigate adverse environmental impacts while leveraging the positive contributions of natural resources .This study also serves as a valuable reference for other developing countries, such as China, in balancing the relationship between environmental sustainability and economic development.

The relationship between digital financial inclusion, gender inequality, and economic growth: dynamics from financial development

PurposeThis article employs a panel vector autoregression (PVAR) model to examine the relationship between digital financial inclusion (DFI), economic growth (EG), and gender equality (GE) across different levels of financial development.Design/methodology/approachBased on the current financial development dynamics, this study applies the PVAR method to two groups of countries: the first group represents the high financial development group, and the second group represents the low financial development group, during the period from 2015 to 2021.FindingsThe findings from impulse response functions reveal that digital financial inclusion fosters economic growth in nations with advanced financial systems, while simultaneously mitigating gender inequality. Conversely, in countries with less developed financial infrastructures, digital financial inclusion stimulates economic growth but exacerbates gender disparities. Moreover, the variance decomposition analysis indicates that the linkage between economic growth, digital financial inclusion, and gender inequality is more intertwined in countries with limited financial development than in those with well-established financial systems.Originality/valueEffective deployment of new technologies relies heavily on technological infrastructure. This policy focuses on constructing and developing information technology infrastructure to create favorable conditions for the implementation of new DFI technologies. This study also emphasizes promoting equitable education and training by ensuring that both women and men have equal opportunities to access quality education and training. This may involve investing in early childhood education, providing access to primary education, and offering scholarships to women in technology, science, and engineering fields.

The dynamics of financial development, environmental degradation, economic growth and population health in the Economic Community of West African States

Abstract By exploring the nexus between financial development and population health in the ECOWAS region we contribute to the debate on population health and also examine the direction of causality between population health and its determinants. We utilised a panel dataset of 11 ECOWAS nations from 1990-2019. The study used the augmented mean group (AMG) estimator to examine the long-run associations among the chosen variables. The empirical results indicate that financial development and economic growth are positive drivers of population health. The analysis also demonstrates that lower population health is associated with increased environmental degradation (CO2 emissions) in the ECOWAS region. However, regarding the country-specific analysis, the impact of the determinants of population health varied per country. The empirical estimates of the Dumitrescu Hurlin panel causality tests reveal a bidirectional causality between population health and its determinants. The empirical outcomes offer new insights for policymakers by means of financial development, environmental degradation, and income as economic tools to promote population health by guiding finance, growth, and environmental policies.

Climbing the green ladder in Sub-Saharan Africa: dynamics of financial development, green energy, and load capacity factor

Climbing the green ladder in Sub-Saharan Africa: dynamics of financial development, green energy, and load capacity factor

Dynamics of Financial Development and Foreign Direct Investment on Nepal's Economic Growth: A NARDL Analysis

This study explores the asymmetric effects of financial development and foreign direct investment (FDI) on economic growth in Nepal, employing the nonlinear autoregressive distributed lag (NARDL) model. The analysis reveals significant asymmetries in the effects of FDI and financial broadening in the economy by distinguishing between positive and negative shocks, the outcome indicates that positive shocks in financial sector growth significantly boost the economy, while negative shocks have a less pronounced and statistically insignificant effect. Similarly, positive shocks in FDI positively influence GDP per capita growth, whereas negative shocks are statistically insignificant. The robustness of these findings shows stable model parameters. The study underscores the importance of proactive policy measures to harness the positive impacts of financial development and FDI, thereby fostering sustained economic growth in Nepal. These insights contribute to the broader literature by highlighting the need for asymmetric analysis in understanding the complex dynamics of financial development, FDI, and economic growth in developing economies.

The African Continental Free Trade Area and Financial Development for Female Labour Force Participation in Africa

The study assesses how financial development dynamics can moderate the incidence of African trade integration on female labour force participation. The focus is on 47 African countries for the period 1995 to 2019 and the empirical evidence is based on Fixed Effects regressions. The findings show that financial development moderates African trade integration to engender an overall positive effect on female labour force participation. Moreover, financial depth proxied by liquid liabilities should reach a threshold of approximately 14.304 (% of GDP) in order to completely dampen an initial negative incidence of intra-African trade integration on female labor force participation. It follows that financial development becomes a necessary and sufficient condition to moderate intra-African trade integration in order to positively affect female labor force participation only when the established threshold of financial depth is attained. Other policy implications are discussed.

Asian Economic Sustainability: A Focus on Financial Development, Education, and Governance

In order to achieve economic sustainability, Asian nations must coordinate their efforts with the Sustainable Development Goals (SDGs) of the United Nations. This paper explores this vital issue. Asia plays a crucial role in the global economy, which emphasizes how urgent it is to improve economic sustainability in order to promote justice and resilience on a global scale. In order to examine the factors that influence economic sustainability in the area between 2000 and 2021, this study looks into the effects of financial development, education, governance, and labor force dynamics. The study applies a rigorous econometric technique and makes use of panel regression and panel two-stage least squares (2SLS) models to illuminate the various aspects that impact the sustainability of economies in Asia. The empirical results highlight the critical roles that government expenditures on financial development, workforce expansion, and education play in promoting economic sustainability. Moreover, governance metrics positively influence GDP, suggesting that governance plays a critical role in determining long-term economic results. For steady and fair economic growth, this paper recommends giving priority to policies that assist financial development, wise educational investments, and the promotion of good governance. Policymakers can build focused initiatives that support economic sustainability and are in line with the larger global goal for resilient and inclusive development by using the identified determinants and their interaction.

Untangling the causal mechanisms and spatial dynamics of digital financial development's impact on energy intensity: insights from panel data of Chinese provinces.

The prime focus of the present investigation delves into the linkage between digital financial services and energy intensity within the geographic confines of China, utilizing provincial-level panel data spanning from 2011 to 2021. Digital finance has rapidly developed due to changes in information technology, and its role in achieving green transformation, reducing energy consumption, and lowering energy intensity in Chinese society is critical. By conducting empirical analysis utilizing diverse models, we have tested our hypotheses and found that digital finance's improvement can contribute to the reduction in energy intensity at the regional level while still considering endogeneity concerns. This effect is mediated by the promotion of technological innovation and the facilitation of green development in industries. Digital finance's impact on energy intensity is contingent upon resource endowments, such as the level of traditional financial development and the degree of information. Moreover, digital finance's adverse impact on energy intensity becomes more pronounced beyond certain threshold values. However, digital finance can increase energy intensity in neighboring regions through spatial spillover effects. Drawing upon our findings, we recommend bolstering the development of digital finance, augmenting the capability for autonomous innovation, and devising specialized strategies for digital finance advancement to fully harness the potential of digital finance in curbing energy intensity. This study interprets the value of digital finance from the new perspective of energy intensity. By exploring the internal links between digital finance and energy intensity, the study enriches the research results on the impact of digital finance on energy intensity.

Does Financial Development Lower Energy Intensity in India?

Although the relationship between finance and growth is gaining significant attention, little is known about how financial development indicators affect energy intensity in emerging nations. Given the complexity of the growth effects of financial development and energy intensity dynamics, the present paper investigates the effect of financial development and economic growth on energy intensity in India using Autoregressive Distributed Lag (ARDL) bounds testing approach. The result indicates that financial development indicators and economic growth had a long-run relationship with energy intensity. Besides, the empirical results reveal that financial development and economic growth had a negative and significant impact on energy intensity in the short and long-run, inferring that financial development and economic growth lower energy intensity in the country. The findings are helpful for India's policymakers in order to maintain the complementarity between financial development and energy intensity.

Dynamics of financial development, innovation, trade, and economic growth: evidence from developed and developing nations

The paper empirically explores the interrelationship among financial development, innovation, trade, and economic growth in 20 developing and developed nations. It applies the panel data methodology to give detailed and more efficient information about the study variables. Further to this, Principal component analysis is applied on the panel data to reduce the eighteen dimensions of financial development and six dimensions of innovation into two indices, separately for developed and developing nations. To bring out the best linkage possible between the stated variables, Panel regression is employed such as Dynamic OLS, Fully Modified OLS and Simple OLS. The study’s key finding indicates a significant relationship between economic growth (EG), trade (TO) and innovation for developed nations. A significant relationship exists between economic growth (EG) and trade (TO), financial development (FD) and innovation for developing nations. A negative and significant relationship with innovation. Thus, it implies that economic growth (EG) boosts through trade (TO) and financial development (FD) in developed nations while economic growth (EG) boosts through trade (TO), innovation, and financial development (FD) in developing nations. On further employing the vector error correction model, the presence of short-run causality between growth, trade and innovation in developed nations and short term causality only between growth and trade for developing nations further reaffirms the results obtained. Thus, the consistent result across various estimation techniques indicates an insignificant relationship between growth and financial development for developed nations but a significant relationship in developing countries between growth, trade, financial development, and innovation. The implications of the study highlight that in developing nations, to innovate and enhance trade and growth, policies to boost infrastructure for R&D should be implemented, while for developed nations, trade is required to boost financial strength and this growth of the economy in both the long and short run.

Financial development and institutional quality among emerging economies

PurposeThis study examines how institutional quality influences variability in financial development among economies in Sub-Saharan Africa (SSA).Design/methodology/approachEmpirical estimations verifying various relationships are performed using the limited information maximum likelihood (LIML) estimation technique.FindingsThe results suggest that institutional quality enhances the pace of financial development among economies in the sub-region all things being equal. In a further micro-level analysis where components of institutional quality index are examined separately, the study’s results suggest that effective governance, regulatory quality, rule of law and accountability tend to have a significant positive impact on financial sector development.Research limitations/implicationsFindings of the study suggest that policies geared towards improving governance and regulatory institutions can augment development of the financial sector among economies in SSA; governments and policymakers are therefore encouraged to resource noted institutions to play effective roles for the development of the financial sector.Originality/valueCompared to related studies, this study reorients existing paradigm, which emphasizes the role of governance and institutional variables in the economic growth discourse. The authors’ empirical inquiry rather focuses on how governance and institutional structures influence regional financial development dynamics. Specifically, this study differs from most macro-level studies found in literature because it examines the impact of hitherto unexamined governance and institutional variables on financial development among economies in SSA.

English

After decades of failed developmental efforts, many economies around the world employed the McKinnon-Shaw liberalization thesis to propel the development of their financial systems. Whiles some of these economies had success stories, others had frustrating outcomes. This study examines the financial liberalisation and financial development dynamics considering inflationary effects, in SSA spanning 2000 to 2019. We conducted preliminary tests to ascertain the suitability of the data for the study and then estimated the PVAR model. Impulse response functions and forecast error variance decompositions were obtained from the residuals of the model estimates. The study established a weak, long-run bidirectional relationship between liberalization and financial development, with liberalization accounting for about 0.09% of financial development, while financial development explains about 0.06% of liberalization shocks on average. It takes 3 to 5 years for the impact to manifest after policy implementation. The study further revealed a positive short-run bidirectional relationship between inflation and liberalization, and an inverse short-run bidirectional relationship between inflation and financial development. While inflation explains about 0.87 and 1.79% of liberalization and financial development shocks respectively, liberalization and financial developments respectively explain about 2.62 and 7.41% of inflation shocks on average. It takes 1 to 2 years for the impulse to manifest after policy implementation. We recommend that for financial liberalization policies to succeed, stable inflationary regime and the necessary preconditions for liberalization policies should be in place prior to the implementation of liberalization policies.    Key words: Liberalization, financial development, endogeneity, exogeneity, stochastic trend, impulse response functions (irf), and forecast error variance decomposition (fevd).

The Dynamics of Financial Development, Government Quality, and Economic Growth in Different Groups of Economies

This study examines the causal relationship between economic growth, financial development, and national governance. To analyze the three-way link of the stated variables, the Panel Vector Auto-Regressive (PVAR) model was applied to 115 economies between 1996 to 2018. The impact of each variable shock is explored through Impulse Response Function (IRF) and variance decomposition. The results indicate that the financial development and national governance shocks have a more persistent impact on economic growth in low-income economies than emerging and developed economies. In contrast, output shock influences long-term financial development in developed economies and affects national governance in a monotonic fashion in all three sets of economies. Moreover, national governance is explored as a critical factor for economic growth especially in low-income economies.

Financial Development and Natural Resources Dynamics in Saudi Arabia: Visiting ‘Resource Curse Hypothesis’ by NARDL and Wavelet-Based Quantile-on-Quantile Approach

This study analyses the impact of natural resource rent on financial development to test the resource curse hypothesis in Saudi Arabia on quarterly data span from 1985Q1 to 2017Q4. We employ two novel methodologies at same time such as nonlinear autoregressive model (NARDL) and Wavelet-based quantile-on-quantile estimation to check the asymmetric behaviour of natural resource rent on financial development. The findings of NARDL confirm the nonlinear behaviour of natural resource rent with financial development. The results also show real GDP, gross capital formation and institutional quality affect financial development positively. The empirical results of Wavelet-based quantile-on-quantile estimation method also reveal the heterogeneous response of natural resource rent effect when decomposes into different quantiles that become positive to negative. The results further explain that the natural resource rent has a positive effect in short-run, but it exerts an adverse effect on financial development after attaining stability.

Dynamics of energy consumption, financial development, trade openness and economic growth in India: an autoregressive distributed lag bounds cointegration approach

Dynamics of energy consumption, financial development, trade openness and economic growth in India: an autoregressive distributed lag bounds cointegration approach

Using ANFIS in joint dynamics of monetization, financial development, public debt and unemployment analysis

Purpose: The modern concepts of contemplating joint dynamics of monetary policy effects on economic growth and its indicators require an indirect approach based on empirical research of mainly financial infrastructure, competitiveness of the financial markets and current economic conditions. Meanwhile, the problems of unemployment and the structure of employment within these concepts are most frequently linked with the polarization of the labor market and two important factors, that is, the effects of growth on unemployment and the fact that technological changes affect the changes in salary ranges. Methodology: By using the Adaptive Neuro-Fuzzy Inference System (ANFIS) and the set of data from 1995 to 2016, this paper analyzes these issues through a prism of established balances between the labor and financial markets, i.e., the monetization of economy (M1/GDP), financial development (Loans/GDP) and the share of gross government debt in GDP (government gross debt/GDP). Results: The proposed model suggests that the rate of unemployment is conditioned by the financial cycle and monetary policy (M1/GDP, Loans/GDP), as well as the business cycle and fiscal policy (gross d/BDP) and that a controlled and properly directed level of monetization of the economy (M1/BDP) and financial development measured as Loans/GDP can be “sufficient” for economic growth. Conclusion: Waiting in the “monetary union lobby”, i.e., waiting for the ERM II exchange mechanism can last longer than the set deadlines, leading to the need for Croatian economic policy to optimize monetary and fiscal policy measures in order to increase economic growth and reduce unemployment.

Financial Crisis, Globalisation and Development in Africa

This study unites two streams of research by simultaneously focusing on the impact of financial globalisation on financial development and pre- and post-crisis dynamics of the investigated relationship. The empirical evidence is based on 53 African countries for the period 2004–2011 and Generalised Method of Moments. The following findings are established. First, whereas marginal effects from financial globalisation are positive on financial dynamics of activity and size, corresponding net effects (positive thresholds) are negative (within range). Second, while decreasing financial globalisation returns are apparent for financial dynamics of depth and efficiency, corresponding net effects (negative thresholds) are positive (not within range). Third, financial development dynamics are more weakly stationary and strongly convergent in the pre-crisis period. Fourth, the net effect from the: pre-crisis period is lower on money supply and banking system efficiency; post-crisis period is positive on financial system efficiency and pre-crisis period is positive on financial size. JEL Codes: F02, F21, F30, F40, O10

Analysis of the relationship between trade openness, structural change, and income inequality under Kuznets curve hypothesis: The case of Turkey

ABSTRACT This study investigates the effect of trade liberalization between 1987 and 2016 on income inequality, which is related to structural transformation in Turkey. For this purpose, the effect of trade openness on income inequality is modelled in non-linear form based on the Kuznets hypothesis. The model has been analysed using the Autoregressive Distributed Lag (ARDL) method. This study has found that there is a non-linear U type relationship between trade openness and income inequality. We have some evidence that shows that while income inequality first decreased when trade openness increased in the early stages of the trade liberalization, during later stages of trade liberalization, there has been an increasing income inequality trend in Turkey. Additionally, the sectoral income inequality variable calculated to represent structural transformation shows that as income gap between agriculture and industry sectors increases, there has been an increasing trend in overall income inequality. The results that were obtained through this analysis are evaluated with other explanatory variables such as GDP per capita, the internal terms of trade and financial development dynamics. There is evidence that while an increase in income per capita decreases income inequality, an increase in financial development and internal terms of trade decrease income inequality.

Thresholds of financial development in the Euro area

AbstractWe analyse the dynamics of financial development and economic growth in the Euro area as these countries went through considerably higher levels of financial development. Using a balanced panel data of 38 years from 1980 to 2018, we offer new evidence on the finance–growth nexus. We show the presence of non‐linearity as there is an inverted U‐shaped relationship between finance and growth in the long run. Estimating the thresholds in the finance–growth nexus, we notice a threshold effect at 74%–86% of GDP for domestic credit; 51% of GDP for stock turnover ratio; and 65% of GDP for stock market capitalisation. We notice that exceeding the threshold causes deceleration in economic growth as too much finance results in crowding out effect for productive economic activities. The panel Granger causality test results show that financial development should be associated with optimal growth performance. These findings in the Euro area provide some useful policy implications to the emerging and developing economies in designing their financial development strategies.

The dynamics of financial development, globalisation, economic growth and life expectancy in sub‐Saharan Africa

The importance of life expectancy is recognised in the development economics literature because of its increasing effects on labour productivity and economic growth in long‐run. However, no published study to date empirically examines the nonlinear relationships between globalisation, financial development, economic growth and life expectancy in sub‐Saharan African (SSA) countries. Therefore, our study intends to fill this gap by using non‐parametric cointegration test and multivariate Granger causality test towards a non‐linear empirical understanding of the factors affecting the life expectancy. We consider the case of 16 sub‐Saharan African economies using annual data over the period 1970–2012. The empirical analysis indicates that financial development, globalisation and economic growth appear to have a positive impact upon life expectancy in sub‐Saharan African economies, except for Gabon and Togo. Our empirical findings may provide insightful policy implications towards improving population health conditions which are vital for promoting the productivity of labour force and long‐run economic growth in sub‐Saharan African countries. In light of these policy implications, governments should incorporate globalisation, financial development and economic growth as key economic instruments in formulating sustainable developmental policy to promote life expectancy for the people in sub‐Saharan African countries.