About the research
This work tests the robustness of two important puzzles regarding the relationship of financial development and economic growth documented in a number of recent papers. The first puzzle relates to the finding that banks have a positive effect upon economic growth in the long run but a negative one in the short run. The second is about the positive effect of stock markets upon economic growth irrespective of time horizons.
On the first puzzle, although the results provide further empirical support to a negative effect of banks’ development upon economic growth in the short run (annual data), they do not provide the expected evidence of a strong positive relationship for the long run. On the second puzzle related to the impact of stock markets upon economic growth, the findings suggest that the sign of the relationship strongly depends on the variables chosen, the method of estimation and the possible role of self-selection bias.
Methodology
This work uses recent development in panel data analysis (panel unit root tests, and tests for deciding the optimal method among pooled least squares, fixed and random-effects). The estimation techniques are ordinary, two stage and GMM. Test of joint significance is carried out by Wald test.
Publications
Ghimire, B. and Giorgioni, G. (2008) ‘Puzzles in financial development and economic growth’, paper presented at the 4th ESDS International Annual Conference, London, 1 December 2008. Retrieved 11 September 2013 from https://wpmedia/casestudies/ghimire-paper.pdf