How Robust is the Finance-Growth Nexus in Small Developing Countries? Empirical Evidence from Fiji

31 Pages Posted: 20 Oct 2013

See all articles by Neelesh Gounder

Neelesh Gounder

University of the South Pacific - Department of Economics; Griffith University - Department of Accounting, Finance and Economics

Parmendra Sharma

Griffith University

Date Written: 2013

Abstract

Does finance really lead to economic growth? A growing strand of literature finds positive and strong link between finance and growth. On the other hand, research has also questioned the robustness of the finance – growth nexus. Generally, however, there is some consensus that finance – growth link might be more meaningful in the case of developing and lower income group of countries, where the capacity for financial development might be much larger compared to developed and/or higher income countries. Financial deepening and broadening are thus likely to contribute to the Pacific Island countries developing economies such as Fiji to move out of poverty and inequality towards economic growth. Accordingly, this paper provides fresh evidence of the finance – growth link from Fiji using a composite index developed to measure financial development. Results show that financial development has made a small contribution to economic growth in Fiji during the period under study. However, there is no evidence of a robust relationship using two different measures of financial development.

Keywords: financial development, economic growth, Fiji

JEL Classification: C50, G20, O40

Suggested Citation

Gounder, Neelesh and Sharma, Parmendra, How Robust is the Finance-Growth Nexus in Small Developing Countries? Empirical Evidence from Fiji (2013). Available at SSRN: https://ssrn.com/abstract=2342675 or http://dx.doi.org/10.2139/ssrn.2342675

Neelesh Gounder (Contact Author)

University of the South Pacific - Department of Economics ( email )

Private Bag, Laucala Campus
Suva
Fiji

Griffith University - Department of Accounting, Finance and Economics ( email )

Parklands Drive
Brisbane, Queensland QLD 4215
Australia

HOME PAGE: http://www.fijianeconomy.com

Parmendra Sharma

Griffith University ( email )

Department of Accounting Finance and Economics
Griffith business School
Brisbane, Queensland QLD 4111
Australia

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