Financial Development and Economic Growth: Panel Evidence From BRICS

14 Pages Posted: 7 Jun 2019

See all articles by Biplab Kumar Guru

Biplab Kumar Guru

Indian Institute of Technology (IIT), Kharagpur - Department of Humanities and Social Sciences

Inder Sekhar Yadav

Indian Institute of Technology (IIT), Kharagpur - Department of Humanities and Social Sciences

Date Written: June 5, 2019

Abstract

Purpose – The purpose of this paper is to examine the relationship between financial development and economic growth for five major emerging economies: Brazil, Russia, India, China and South (BRICS) during 1993 to 2014 using banking sector and stock market development indicators.

Design/methodology/approach – To begin with, the study first examined some of the principal indicators of financial development and macroeconomic variables of the selected economies. Next, using generalized method of moment system estimation (SYS-GMM), the relationship between financial development and growth is investigated. The banking sector development indicators used in the study include size of the financial intermediaries, credit to deposit ratio (CDR) and domestic credit to private sector (CPS), whereas the stock market development indicators are value of shares traded and turnover ratio. Also, some macroeconomic control variables such as inflation, exports and the enrolment in secondary education were used.

Findings – The examination of the principal indicators of financial development and macroeconomic variables have shown considerable differences between the selected economies. Results from the dynamic one-step SYS-GMMestimates confirm that in presence of turnover ratio, all the selected banking development indicators such as size of financial intermediaries, CDR and CPS are positively significantly determining economic growth. Similarly, in presence of all the selected banking sector development indicators, value of shares traded is found to be positively significantly associated with economic growth. However, the same is not true when turnover ratio is regressed in presence of banking sector variables. Overall, the evidence suggests that banking sector development and stock market development indicators are complementary to each other in stimulating economic growth.

Practical implications – A positive association between financial development and growth indicates that the policymakers should take necessary measures toward simultaneous development of both banking sector as well as stock market for inducing growth.

Originality/value – The present paper attempts to examine the relationship between financial development and growth using both banking sector and stock market development indicators which has not been attempted before for BRICS. Also, most of the existing studies are found in case of developed economies. This paper tries to fill this void by studying five major emerging economies.

Keywords: Growth

Suggested Citation

Kumar Guru, Biplab and Yadav, Inder Sekhar, Financial Development and Economic Growth: Panel Evidence From BRICS (June 5, 2019). Journal of Economics, Finance & Administrative Science, Vol. 24, No. 47, 2019, Available at SSRN: https://ssrn.com/abstract=3399728

Biplab Kumar Guru

Indian Institute of Technology (IIT), Kharagpur - Department of Humanities and Social Sciences ( email )

Kharagpur, West Bengal 721302
India

Inder Sekhar Yadav (Contact Author)

Indian Institute of Technology (IIT), Kharagpur - Department of Humanities and Social Sciences ( email )

Kharagpur, West Bengal 721302
India

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