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Revisiting Linkages between Financial Development, Trade Openness and Economic Growth in South Africa: Fresh Evidence from Combined Cointegration Test

Polat, Ali and Shahbaz, Muhammad and Ur Rehman, Ijaz and Satti, Saqlain Latif (2013): Revisiting Linkages between Financial Development, Trade Openness and Economic Growth in South Africa: Fresh Evidence from Combined Cointegration Test.

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Abstract

This study revisits the impact of financial development on economic growth in South Africa by incorporating trade openness in the production function. The paper covers the period of 1970-2011. We apply the Bayer-Hanck combined cointegration approach to examine the long run relationship between the variables. Our results indicate that financial development stimulates economic growth. Capital use adds in economic growth but trade openness impedes economic growth. The demand-side hypothesis is validated in South Africa. This paper suggests that government should redirect trade policies to reap optimal fruits of financial development for long run economic growth.

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