The impact of financial institution and market development on the economic growth in BRICS
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Date
2019
Authors
Mwakio, Joseph Mundu
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Abstract
This research investigated the causal relationship between financial development
and economic growth in Brazil, Russia, India, China and South Africa (henceforth
BRICS) from 1990 to 2015. Panel studies were conducted using Panel Vector Error
Correction (VEC) Modelling and Granger causality tests. The research found that
bank development exhibited bidirectional causality, which transitioned to reverse
causality from 1995 to 2015. Bond and stock market development exhibited
unidirectional Granger causality with economic growth. Private debt issued through
bond markets was consistently shown to Granger cause economic growth, unlike
private credit issued by banks. On the basis these research findings, it is
recommended that BRICS member states control the level and growth of private
credit. Failure to do so could give rise to speculation, asset bubbles, financial crises
and recessions. More critically, BRICS should promote the development of financial
markets, especially bond markets, which would promote private debt as a productive
alternative to the private credit issued by banks.
Keywords: financial development, economic growth, BRICS, panel VECM, Granger
causality
Description
MBA
Keywords
Capital market -- Developing countries. Financial crises -- Developing countries. Globalization -- Economic aspects -- Developing countries. Developing countries -- Economic policy -- 21st century.