Is the Growth Effect of Financial Development Conditional on Technological Innovation?

CGBCR Discussion Paper Series, Number 188

33 Pages Posted: 26 Dec 2013

See all articles by Arshad Bhatti

Arshad Bhatti

IIIE, International Islamic University Islamabad

M. Emranul Haque

University of Manchester - School of Social Sciences

Denise R. Osborn

University of Manchester - School of Social Sciences; University of Tasmania

Date Written: August 15, 2013

Abstract

This paper argues that excessive financial development in combination with high levels of technological innovation or R&D activities may lead to the former being ineffective in generating economic growth. This hypothesis is examined through a dynamic panel analysis using two measures of financial development, in conjunction with R&D expenditure, for 36 OECD and non-OECD countries. Using a range of panel data estimators, our results show that the relationship between financial development and economic growth is not straightforward; rather, it is conditional upon the level of R&D. Further, we find that a high level of R&D is associated with a weak or negative effect of financial development on economic growth.

Keywords: Economic growth, Financial development, Macroeconomic policy, R&D, Panel data

JEL Classification: E44, G21, O32, O40

Suggested Citation

Bhatti, Arshad and Haque, M. Emranul and Osborn, Denise R., Is the Growth Effect of Financial Development Conditional on Technological Innovation? (August 15, 2013). CGBCR Discussion Paper Series, Number 188, Available at SSRN: https://ssrn.com/abstract=2371637 or http://dx.doi.org/10.2139/ssrn.2371637

Arshad Bhatti

IIIE, International Islamic University Islamabad ( email )

IIIE, Block II
H-10
Islamabad, 44000
Pakistan
+92519258038 (Phone)

M. Emranul Haque (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom
+0161 275 4829 (Phone)

HOME PAGE: http://www.socialsciences.manchester.ac.uk/disciplines/economics/about/staff/

Denise R. Osborn

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

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