Financial Development Indicators Research Articles

Exploring renewable energy, financial development, environmental quality, and economic growth nexus: new evidence from composite indices for environmental quality and financial development.

The association between trade, financial development, consumption of renewable energy, environmental quality, foreign direct investment, and economic growth is important for sustainable growth and environmental strategies. Hence, this research unveils this association in selected low- and high-income economies from 1996 to 2020. Unlike most of the previous literature, this study uses a composite environmental quality index, a composite financial development index, and a composite trade share measure to better represent environmental quality, financial development, and trade openness, respectively. The Continuously Updated Fully Modified and Continuously Updated Bias Corrected estimators along with the Dumitrescu Hurlin causality method are utilized to scrutinize the nature of the linkage between the modeled variables. The long-run estimation provided that consumption of renewable energy and environmental quality augment economic growth in high-income nations, while both these variables do not contribute to the economic growth in low-income countries. Financial development upsurges economic growth in high- as well as low-income nations. Interestingly, trade openness boosts economic growth in high-income countries, while in low-income countries, it obstructs economic growth. In causal linkage, the conservation hypothesis for low-income countries and the feedback hypothesis for high-income countries are confirmed in the context of consumption of renewable energy and economic growth association. The supply-leading hypothesis for low-income countries and the feedback hypothesis for high-income countries are supported regarding the financial development-economic growth nexus. Moreover, one-way causality from growth to environmental quality and bidirectional causality between environmental quality and economic growth for low- and high-income countries are established, respectively. Lastly, exhaustive environmental and economic policies are directed.

Full Modified Ordinary Least Square Analysis of the Relationship between New Technologies of Information, Financial Development and Growth in WAEMU Zone

This paper aims to study the relationship between financial development, information, and communication technology (ICTs) diffusion and economic growth by examining the effects of interactions between finance and ICT on economic growth. The study covers eight West African Economic and Monetary Union (WAEMU) countries and spans the period from 2000 to 2018. The empirical results, after applying the fully modified ordinary least squares (FMOLS) estimator can be generalized as follows. First, regardless of the financial development indicator used, the empirical results show that financial development negatively influences economic growth in the WAEMU. This counter-intuitive relationship may be related to many phenomena, but there are no clear explanations in the literature yet. Second, ICTs diffusion improves economic growth in the zone. This implies that WAEMU countries should strengthen their ICTs policies and improve the use of new information and communication technologies. Finally, the interaction between ICTs diffusion and financial development is positive and significant in explaining growth. This implies that the economies of the WAEMU region can only benefit from financial development once a level of ICTs development is reached.

Financial development and renewable energy consumption in Nigeria

Financial sector performance is increasingly linked with the transition to renewable energy in the sustainability discourse of developing economies. This paper examines the nexus and implication(s) of financial development on renewable energy consumption in Nigeria (the largest and most populous economy in Africa). Specifically, this study utilized the broad-based financial development index data to effectively address the multidimensional nature of financial development and the portion of renewable energy in total energy consumption as key variables, while other relevant pieces of information (growth rate of per capita GDP, foreign direct investment and consumer price index) were incorporated. The study employed a blend of the ADF test and Zivot-Andrew test to ascertain stationarity properties as well as the likelihood of structural breaks, while the ARDL was utilized to determine the long-run relationship(s) using data from 1981 to 2019. The study estimation finds, among other things, that financial development is critical for renewable energy consumption in Nigeria and recommends policies to promote better outcomes for the financial and energy sectors, respectively.

Environmental implications of regional financial development on air pollution: evidence from European countries

This study focused on the spatial effects of CO2 determinants, using data from 43 European countries between 1996 and 2018. Tests proved the existence of the spatial Durbin model. The findings indicate that the logarithm of GDP per capita, urbanization, and energy use have enhancing effects on CO2 emissions, but that these effects are meaningless for trade openness. Most of the coefficients provided insignificant results, while six financial development indicators were entered into the model in a straight line. The addition of the term "interaction between energy intensity and financial development" improved the effects of all of the components significantly. The phrase's negative and significant coefficient predicts increased energy intensity efficiency as a result of the development of multiple financial production components. The analysis of spatial effects reveals that control variables in adjacent countries have negligible effects on CO2 emissions. Overall, the findings show that CO2 emissions are falling as neighboring countries' productivity and financial development rise. The findings indicate that financial development in neighboring countries has comparable effects on CO2 emissions as domestic financial development. As a result of these findings, European countries have reached a point of financial integration.

The Impact of Inclusive Finance on High-Quality Economic Development of the Yangtze River Delta in China

As a new service system of finance, inclusive finance emphasizes on better meeting the needs of people’s livelihood at a reasonable and affordable cost. Inclusive finance can effectively solve the problems existing in the process of high-quality economic development by promoting regional coordinated development and narrowing the income gap between urban and rural areas. Firstly, this paper constructs the inclusive financial development level measurement index system and high-quality economic development measurement index system, uses these two index systems to measure the development of inclusive finance and high-quality economy of the Yangtze River Delta in China from 2010 to 2019, and then empirically analyzes the impact of Inclusive Finance on high-quality economic development in the Yangtze River Delta by using the panel threshold model. The results show that the inclusive financial development level and high-quality economic development level of cities under the jurisdiction of the Yangtze River Delta have increased steadily year by year, but the development level differentiation among different cities is obvious. Inclusive finance has a threshold effect on high-quality economic development. When the inclusive finance index is lower than 0.358, inclusive finance is not conducive to high-quality economic development. When the inclusive financial development index is between 0.358 and 0.522, inclusive finance promotes high-quality economic development, but the effect is weak. When the inclusive financial development index is greater than 0.522, inclusive finance can significantly promote high-quality economic development.

A STUDY OF FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH: AN EMPIRICAL EVIDENCE FROM AN INDIAN ECONOMY

Purpose: Using yearly information from 1982 to 2020, the paper‘s goal is to investigate the link between economic growth & financial development in India. Design/methodology/approach: ADF, KPSS, Ng– Perron, and DF-GLS unit root tests are used to verify stationarity characteristics. The autoregressive distributed lag (ARDL) technique to co-integration is used to investigate short and long-run dynamics. Findings: The co-integration test reveals a long-term link between India's economic growth and financial development. According to the findings of the ARDL tests, both market and bank-based indices of financial development have a significantly and positives influence on India's economic growth. As a result, the findings back up the supply-side hypothesis and emphasize the significance of financial development in economic growth. The results also suggest that the Indian financial sector, which is dominated by banks, has the ability to develop the economy through credit transmission. Originality/value: To achieve long-term economic growth, the current study suggests suitable financial market changes. Policymakers that aim to maintain a simultaneous expansion of growth and financial development may find the findings valuable.

Financial Sector Development and Economic Growth Nexus: Empirical Evidence from Sierra Leone

The study examines the nexus between financial sector development and economic growth in Sierra Leone over the period 1980-2018. The stationarity test result shows that the order of integration of variables included in the model was a mixture of I (0) and I (1). Therefore, the study employs the bounds testing approach to Cointegration and error correction models developed within the Autoregressive Distributed Lag (ARDL) framework to explore the long-and short-run effects of financial sector development on economic growth. The study uses two different measures of financial development including, credit to the private sector and broad money. The study also investigates whether there are other determinants of economic growth. Evidence of short-run dynamics was found amongst the various financial development indicators and economic growth. The results showed that credit to the private sector and broad money influenced economic growth in the short-run. Again, inflation and government consumption expenditure were found to impede economic growth in the short-run. Contrarily, Gross capital formation and FDI were found to stimulate economic growth in the short-run. The study recommends that policy makers should take caution in the choice of financial development indicator as a policy instrument for the attainment of growth and development. Again on the basis of empirical evidence, policies to improve the accessibility of affordable credit by the private sector, including small and medium scale enterprises should be enforced

The Effect of Investment in Education on China’s Economic Growth: The Role of Financial Development

Earlier studies have focused on how education investment affects economic growth in different countries, namely developed and developing countries. The conclusions have been ambiguous and one of the dominant factors leading to such variation is the omission of financial development indicators. The present paper makes use of panel date from 2005 to 2019 on 31 provinces of China to examine how financial development can influence the relationship between education investment and economic growth. The findings show that financial development does not facilitate the impact of education investment on economic growth in wealthier regions. However, for poorer provinces with GDP per capita below the average, financial development as proxied by the ratio of total loans and total deposits in the financial system to GDP, respectively, can indeed enhance the effect of education investment on economic growth. Such enhancement is valid even when the proxies for education investment and financial development respectively pose negative effect on economic growth. Credit expansion and savings increase may facilitate government expenditure in education, which in turn promotes economic growth in relatively poor provinces to a greater degree than does the relatively wealthy provinces. Financial development strategy should be targeted to poorer provinces with below-average economic growth to facilitate growth-promoting educational financing.

Causality between financial development, economic growth, and income inequality in EU countries

This study investigates the causality between financial development, economic growth, and income inequality using panel data for 23 European Union countries over the period 1987-2017. Various proxies of financial development are chosen to represent the depth, efficiency, and stability of the banking system and stock markets. For the empirical analysis, the study performs the Granger non-causality test in heterogeneous panels. The findings are contradictory and sensitive to the measures of financial development. Most importantly, the results reveal a one-way causality from financial development to economic growth when private credit, stock market capitalization, net margin interest rate, and Z-score are chosen as financial development indicators. In addition, a two-way causality exists between bank assets, liquid liabilities, non-performing loans, and economic growth, and a one-way causality from economic growth to value traded and turnover ratio. However, the results show no causality between stock price volatility and economic growth. The results indicate a one-way causality running from income inequality to economic growth. Finally, a one-way causality runs from income inequality to financial development for most measures of financial development except for a one-way causality running from private credit to income inequality, a two-way causality between bank assets and inequality, and an absence of causality between income inequality and turnover ratio, Z-score and stock price volatility.

Study on the Coupling Relationship between Environmental Quality and Green Financial Economy Based on the Grey Correlation Analysis Model

Since the reform and opening up, there has been a great demand vacancy in the market. The development of green finance can just meet many market demands. Let it stand out among many financing schemes. As an innovative financial model that can effectively promote the global economy, green finance is of great significance to the global ecological economy and environmental state. In this article, we will discuss the economic coupling relationship between environmental quality and green finance. Because we lack a relatively perfect economic evaluation system, therefore we integrate green finance and environmental quality indicators, introduce them into relevant and suitable evaluation system indicators, and mainly analyze and judge based on the grey relational analysis model. The results show the following: (1) investigate the environmental quality and green financial comprehensive benefit development index of A, B, and C cities, judge the lagging types of the three cities, and evaluate the specific development status of the cities. (2) Collect data and calculate the coupling degree and coordination degree of cities. Their coupling levels and coordination types are summarized, respectively. (3) The higher the correlation between urban environmental quality and green financial indicators, the closer the relationship between the two indicators and the greater the mutual influence. (4) Sort them by grey relational degree. The correlation between Y1 and Z3 is the least, which is 0.55 and 0.552, respectively. Y3 can be correlated up to 0.655. The results of this paper are very good, and we get the result that green finance can promote the effective improvement of environmental quality.

Determinants of Islamic Bank Performance: An Assessment of Jaiz Bank Plc Nigeria

The paper assessed whether the bank-specific factors (internal) and economic (external factors) determine the financial performance of Jaiz bank Nigeria as an Islamic bank. Secondary data from the bank’s financial statements and world banks Development indicators were extracted for the period of 8 years (2011 to 2018). After description analysis, OLS regression was utilized to determine the effect of independent variables (GDP, Inflation, Interest, capital adequacy, credit risk, deposit ratio, and cost efficiency) have on the dependent variables (ROA, ROE, and ROI) financial performance. It was established that; GDP as an external factor has a significant positive association with financial performance, cost efficiency was discovered to have a weak positive relationship with the financial performance, while inflation rate, interest rate, capital adequacy, deposit ratio, and credit risk were found to have no significant effect on the bank’s financial performance. It was recommended that; Islamic banks need to give more consideration to the economic factors in their policies and programs as they may influence their profitability. More studies are also needed to compare the determinants of Islamic banks with that of Money Deposit Banks.

Banking sector development and Economic growth in south Asian countries: Dynamic Panel data analysis

This study explores the contribution of banking sector development to economic growth for a sample of four south Asian countries namely, Sri Lanka, Bangladesh, Pakistan and India. The study employed Fixed Effect (FE), Difference GMM and System GMM models to the data set for the period of 1980 -2017. The findings of the study indicates that bank based financial development index constructed of private sector credit, board money(M2) and domestic credit provided by banks affect economic growth significantly and positively almost in all models. The result approves that bank based financial development contribute to economic growth and augment growth level in the sample countries. The findings conclude that bank based financial development is important in boosting economic growth and suggests sampled countries of this study government’s channels and regulatory authority on further improvement on banking system in order to achieve higher economic growth.

Financial Development, Institutional Quality, and the Influence of Various Environmental Factors on Carbon Dioxide Emissions: Exploring the Nexus in China

Carbon dioxide (CO2) emissions have been the key source of extreme environmental degradation and have an adverse impact on climate and human activities. Although a large number of studies have explored the determinants of CO2 emissions, the role of institutional quality has not been fully studied. Our study contributes to the existing literature by examining the influence of financial development, institutional quality, foreign direct investment, trade openness, urbanization, and renewable energy consumption on CO2 emissions over the period 1996–2020 by utilizing the dynamic autoregressive distributed lag simulations. The empirical findings of the study indicate that the indicators of governance, trade, financial development, and renewable energy consumption adversely affect CO2 emissions, while urbanization and foreign direct investment contribute to environmental degradation. The empirical results of this study indicate that in order to mitigate environmental degradation and to achieve environmental sustainability, the government should establish consistency between environmental and economic policies. Moreover, in order to achieve low carbon emissions and sustainable development, countries need viable financial institutions that focus on green growth by promoting clean production process strategies to ensure the reduction of CO2 emissions.

Financial development: Is it an advantage or obstacle for monetary policy?

PurposeThe objective of this study is to assess the impact of financial development (FD) on monetary policy efficiency (MPE) in developed G7 countries in the period 1980–2017, based on data availability.Design/methodology/approachThis study followed a two-step process as follows: (1) using the Monte Carlo simulation based on Taylor curve theory to build the MPE measure and (2) evaluating the effect of FD on MPE by feasible generalized least squares (FGLS) estimation.FindingsThe results of this study show that (1) MPE varies over time. Monetary policy appears ineffective during the crisis period and is subject to many impacts of domestic and external shocks. On the contrary, the ability to influence the economy to achieve the central bank's goal tends to increase in the recovery stages, and this is in line with the actual. (2) FD has a negative impact on MPE. Interestingly, when considering the role of component FD indicators, the development of financial markets (FMs) has a negative impact on MPE while the development of financial institutions (FIs) has a positive impact. In particular, the impact of FI on MPE is mainly attributed to the impact of the depth of FI. Meanwhile, the impact of FM on MPE is mainly due to the impact of the efficiency in the FM.Originality/valueTo the author’s knowledge, this is the first study that evaluates the impact of FD on MPE in the context of measuring MPE by using the Taylor curve theory. Results from this study suggest a scientific and practical MPE measure and provide significant policy implications. This paper also offers suggestions for future research.

Exchange rate uncertainty and foreign direct investment in Africa: Does financial development matter?

AbstractThe orthodox view is that uncertainty deters investments and, by extension, private capital inflows. Paying specific attention to the volatility of the domestic exchange rate, foreign direct investment (FDI), and financial development indicators, this study investigates the impact of exchange rate uncertainty on FDI and whether financial development matters in such association. We establish our empirical relationship with a system general methods of moments (GMM) two‐step robust estimator with orthogonal deviations. We found evidence supporting a nonlinear U‐shaped relationship between uncertainty and FDI and that the impact of uncertainty on FDI depends on varying levels of uncertainty. We also document that uncertainty deters FDI flows and that countries with a well‐functioning financial development can transform the adverse impact of volatility on FDI. However, curbing the adverse effect depends on the specific indicator and the threshold value of financial development (financial institutions or financial markets).

How does Financial Development and Economic Growth affect Energy Consumption;The Panel VAR Analysis of 5 Turk Countries

In this study, the linkage among energy consumption, financial development, foreign direct investments and economic growth in 5 Turk’s countries (Turkey, Azerbaijan, Kazakhstan, Kyrgyz Republic and Tajikistan) were examined during the 1992-2017 observation period. Panel var methodology was applied by using 3 different financial development indicators. According to analysis results, the increase in bank deposits, which is one of the financial development indicators, positively affects the energy demand, while the increase in private loans negatively affects the energy demand. On the other hand, energy consumption increases have a negative impact on financial development. When the economic growth and energy consumption relation are examined, the increase in energy consumption affects economic growth positively, foreign direct investment has an inverse relationship with energy consumption. The causality results suggest that there is two-way causality between energy consumption and all other variables except liquid liabilities, and there is one-way causality running from energy consumption to liquid liabilities. An increase in energy consumption, foreign direct investments and, liquid liabilities are the drivers of economic growth. However, although the increase in energy consumption has a positive effect on economic growth, it has a negative effect on financial development. Therefore, reducing foreign dependency and turning to renewable energy sources and energy-efficient technologies will reduce energy costs on the financial market and increase the welfare of the country in the long run.

The effect of financial development on economic Growth: Evidence from south Asian developing countries

The debate on financial development and economic growth has been comprehensively growing for a long time in the theoretical and empirical literature but there is still conflicting views on this association. Several studies have been conducted on different regions and countries whether banks or stock market finance have any influence on economic growth but the results are still far from a significant conclusion. The empirical findings inclined the view that both banks and stock markets have positive impact on economic growth however some studies support the negative association which may varies on different sample of countries, methodology of the study, proxies for financial development and over time. Based on the ongoing debate, the current study examines the impact of both stock markets and bank based financial development on economic growth in four developing countries of south Asia for the period of 1980-2017. The study use static, dynamic and long run estimators to efficiently investigate this association. The outcomes specify that both market-based and bank-based financial development indices affect economic growth significantly and positively which indicates that the development of banking system and stock markets perform a very propounding role in strengthening economic growth in the sample countries. The long-run estimators also confirm the presence of long run association between variables. The robustness tests confirm the results of all models that both banks and stock markets development are important and contribute to economic growth in the same way in the sample countries and can’t be differentiated. The findings of this study have important policy suggestions to the sample countries government’s channels, regulatory and supervisory efforts on further improvement of both stock markets and bank-based development in order to attain higher economic growth.

Multidimensional Financial Development, Trade Liberalization, and Productivity Growth

Only recently have researchers turned their attention to questions of financial development understood as a multidimensional concept: a combination of depth, access, efficiency, and diversity of financial providers. Using a broad-based index of financial development, we document how the different aspects of financial development affect the relationship between trade and productivity growth across countries. We find that for richer countries, financial depth and access strengthen the effects of trade openness on growth, while for poorer countries, only the degree of efficiency matters. Our results are robust to changes in sample, trade measures, and estimation strategies, and suggest the source of comparative advantage from financial development is different for countries with different levels of income.

Financial development and economic growth in Malaysia: a nonlinear ARDL application

Determining the relationship between financial development and economic growth is important to make precise projections of economic growth. As most of these studies rely on a symmetric relationship, they can lead to misleading policy implications. To overcome this shortcoming, this paper uses a technique involving an asymmetric relationship. This paper examines the asymmetric relationship between financial development and economic growth in Malaysia from 1980 to 2017 using a nonlinear autoregressive distributed lags model. The banking sector and stock market development have been employed as indicators of financial development. The findings suggest that the asymmetric relationship between banking sector development and economic growth exists in the long-run. Banking sector development shows no asymmetric relationship with economic growth in the short-run, while stock market development does not present any asymmetric relationship with economic growth in the short and long-terms. The study infers that the banking sector development is an essential engine of growth promotion. Policymakers should consider banking and stock market development for better policy decision-making.

Financial development measurement: Comparison of the high- and low-income countries

The literature that treats financial sector development and its impact on various economic phenomena does not recognise a single indicator of financial development measurement, nor do the various regulators of the financial sector have a single indicator to measure its development. Divergencies in financial development proxies used have prompted the International Monetary Fund (IMF) staff to create an indicator that includes all aspects of financial sector development (Čihák, Demirgüç-Kunt, Feyen, & Levine, 2012). The purpose of this paper is to show the main indicators of the financial development measurement and the gap between high- and low-income countries’ financial systems using the financial development index (FD index) developed by the IMF. This paper introduces the financial development indicator and uses it to compare different income group countries. The results show differences in the levels of financial development across countries. We also notice an improvement of the overall financial system in all of the groups of countries, showing an increasing trend in the last 10 years compared to the previous 10 years, but the desperate fact is that low-income countries have a long way to go to reach the level of financial development of high-income countries.