Do Non-Intermediation Services Tell Us More in the Finance–Growth Nexus?: Causality Evidence from Eight OECD Countries

Forthcoming, Applied Economics

37 Pages Posted: 6 Sep 2019

See all articles by Su-Yin Cheng

Su-Yin Cheng

Shih Hsin University

Han Hou

Lunghwa University of Science and Technology

Date Written: August 30, 2019

Abstract

This paper provides new evidence on a traditional finance–growth nexus through dividing financial services into financial intermediation and non-intermediation services and examining their relationships with economic growth. Applying time-series cointegration techniques and Granger causality tests for eight Organization for Economic Cooperation and Development (OECD) countries, reveals several results. First, there is a long-run equilibrium relationship among economic growth, intermediation activities, and non-intermediation activities in Austria, France, and Korea. Second, non-intermediation services impede long-run economic growth in Austria and France, whereas non-intermediation business and financial intermediation services accelerate Korea’s long-term growth. Third, weak exogeneity tests support long-run bi-directional causality and the supply-leading hypothesis in terms of the relationship between financial services and economic growth. Finally, the influences of intermediation and non-intermediation activities on economic growth vary across countries, financial services, and time periods, indicating that countries should adopt different financial services to enhance long- or short-term economic growth. This paper emphasizes the importance of non-intermediation activities in the growth process and in the development of intermediation services.

Keywords: Financial intermediation; non-intermediation; economic growth; Granger causality

JEL Classification: C32; F30; G21; G28; O16; O40

Suggested Citation

Cheng, Su-Yin and Hou, Han, Do Non-Intermediation Services Tell Us More in the Finance–Growth Nexus?: Causality Evidence from Eight OECD Countries (August 30, 2019). Forthcoming, Applied Economics. Available at SSRN: https://ssrn.com/abstract=3445329 or http://dx.doi.org/10.2139/ssrn.3445329

Su-Yin Cheng

Shih Hsin University ( email )

Taipei
Taiwan

Han Hou (Contact Author)

Lunghwa University of Science and Technology ( email )

No.300, Sec.1,Wanshou Rd., Guishan District
Taoyuan, 33306
Taiwan

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