Effects of Financial Sector's Development and Financial Sector's Efficiency on Economic Growth: Empirical Evidence from Developing and Developed Countries

This paper analyses the effects of financial sector's development and financial sector's efficiency on economic growth of a group of selected developing and developed countries using a cross-country data averaged over the period 200 1-2005. The results show that the effect of financial sec...

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Bibliographic Details
Published in:Journal of economic & management perspectives 2010-06, Vol.4 (2), p.449
Main Authors: Waheed, Abdul, Younus, Najia
Format: Article
Language:English
Subjects:
Banking
Causality
Corporate governance
Cost control
Developing countries
Economic growth
Efficiency
Financial institutions
Financial services
GDP
Generalized method of moments
Gross Domestic Product
Hypotheses
Industrialized nations
Investments
LDCs
Productivity
Progress
Securities markets
Sensitivity analysis
Studies
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Summary:This paper analyses the effects of financial sector's development and financial sector's efficiency on economic growth of a group of selected developing and developed countries using a cross-country data averaged over the period 200 1-2005. The results show that the effect of financial sector's development and financial sector's efficiency on economic growth is significantly positive for a full sample of 98 developing and developed countries. For a sample of 64 developing countries the effect of financial sector's development and financial sector's efficiency is also positive and highly significant, however, for a sample of 26 developed countries the effect of financial sector's development is significantly positive but the effect of financial sector's efficiency is positive but statistically insignificant. The sensitivity analysis also shows that the relationship remain positive and significant no matter what combination of the omitted variables are used in the basic model. Thus, our findings support the core idea that financial sector's development and financial sector's efficiency stimulates economic growth. [PUBLICATION ABSTRACT]
ISSN:2523-5338
2523-5338