Financial innovation and economic growth: Empirical evidence from China, India and Pakistan

This study investigates the causal relationship between financial innovation and economic growth in China, India, and Pakistan over the period of 1970–2016. Using an Autoregressive Distributed Lag (ARDL) bound testing and Granger causality‐based Error Correction Model (ECM), this study finds that fi...

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Bibliographic Details
Published in:International journal of finance and economics 2021-10, Vol.26 (4), p.6036-6059
Main Authors: Nazir, Muhammad Rizwan, Tan, Yong, Nazir, Muhammad Imran
Format: Article
Language:English
Subjects:
ARDL
Causality
Economic growth
financial innovation
financial system
Granger causality
Innovations
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Summary:This study investigates the causal relationship between financial innovation and economic growth in China, India, and Pakistan over the period of 1970–2016. Using an Autoregressive Distributed Lag (ARDL) bound testing and Granger causality‐based Error Correction Model (ECM), this study finds that financial innovation generally has a positive and statistically significant impact on economic growth in the short‐run and long‐run. These results show that in the long‐run, monetary management and credit flow to the private sector play an essential role in economic growth. The trade openness and gross capital formation contribute considerably to the economic growth in China, India, and Pakistan. For robustness, this study also applies the Dynamic Ordinary Least Square (DOLS) and Fully Modified Ordinary Least Square (FMOLS) method. The findings of this study suggest that the financial sector plays an essential role in supporting innovation activity in Asian countries.
ISSN:1076-9307
1099-1158
DOI:10.1002/ijfe.2107