Finance and growth: New evidence from Meta-analysis

Asongu, Simplice A (2013): Finance and growth: New evidence from Meta-analysis. Forthcoming in: Managerial Finance

Abstract

Purpose – In a meta-study, we have bridged the gap between the pros and cons of a questionable finance-growth nexus.

Design/methodology/approach – Over 20 fundamental characteristics that have influenced the debate over the last decades have been examined. The empirical evidence is based on 196 outcomes from 20 studies. We assess the degree of heterogeneity and identify causes of the observed differentiation.

Findings – Our findings also show evidence of publication bias. Overall, a genuine effect exists between financial development and economic growth. A finance-growth nexus might not be appealing in our era because of: endogeneity-based estimations, publication bias and, effects of financial activity. A historical justification has also been discussed.

Practical implications – Encouraging the publication of results with findings that are not consistent with the mainstream positive finance-growth nexus should provide new scholarly insights into the relationship. Depending on the specific context of sampled countries, the role of policy has also been to encourage financial development through measures that may expose countries to negative external shocks like financial crises. Policy makers that have been viewing the challenges of development exclusively from this point of view for the rewards of growth may not be getting the financial dynamics correctly.

Originality/value – Very few meta-analysis studies have focused on the finance-growth nexus.

• Item Type: MPRA Paper
• Language: English
• Keywords: Meta analysis; Finance; Economic growth; Publication bias
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics; E - Macroeconomics and Monetary Economics > E0 - General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development

References

Andersen, T., & Tarp, F., (2003). “Financial Liberalization, Financial Development and Economic growth in LDCs”. Journal of International Development, 15:189-209.

Asongu, S. A., (2013a). “A Short-run Schumpeterian Trip to Embryonic African Monetary Zones”, Economics Bulletin, 33(1), pp. 859-873.

Asongu, S. A., (2013b). “The ‘Knowledge Economy’-finance nexus: how do IPRs matter in SSA and MENA countries?”, Economics Bulletin, 33(1), pp. 78-94.

Asongu, S. A., (2013c). “How do financial reforms affect inequality through financial sector competition? Evidence from Africa”, Economics Bulletin, 33(1), pp. 401-414.

Asongu, S. A., (2013d). “How has mobile phone penetration stimulated financial development in Africa”, Journal of African Business, 14(1), pp. 7-18.

Asongu, S. A., (2013e). “Investment and inequality in Africa: which financial channels are good for the poor”, African Finance Journal, 15 (2), pp. 44-66.

Asongu, S. A., (2014a). “Financial development dynamic thresholds of financial globalization: evidence from Africa”, Journal of Economics Studies: Forthcoming.

Asongu, S. A., (2014b). “Law, Finance and Investment: does legal origin matter in Africa?” The Review of Black Political Economy: Forthcoming.

Asongu, S. A., (2014c). “Financial Sector Competition and Knowledge Economy: Evidence from SSA and MENA Countries”, Journal of the Knowledge Economy: Forthcoming. http://link.springer.com/article/10.1007/s13132-012-0141-4

Barajas, A., Chami, R., & Yousefi, S. R., (2010). The Finance and Growth Nexus Re-examined: Are There Cross-Region Differences? IMF Working Paper.

Baumann, S., Hermes, N., & Lensink, R., (2012). “Financial liberalization and economic growth: a meta analysis”, Technical report. London: EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.

Beck, T., Levine, R., & Loayza, N., (2000). “Finance and The Sources of Growth”. Journal of Financial Economics, 58(1-2): 261-300.

Buckle, R. A., (2009). “Asia-Pacific growth before and after the global financial crisis”. Policy Quarterly, 5(4): 36-45.

Card, D., & Krueger, A., (1995). “Time series minimum wave studies: a meta-analysis”. American Economic Review, 85(2): 238-243.

Christopoulos, D. K., & Tsionas, E. G., (2004). “Financial development and economic growth:evidence from panel unit root and cointegration tests”. Journal of Development Economics. 73: 55-74.

Claessens, S., & Laeven, L., (2002). “Financial Development, Property Rights and Growth”. World Bank Policy Research Working Paper 2924

Corporale, M. G., Rault, C., Sova, R., & Sova. A. (2009). “Financial depth and Economic growth: Evidence from Ten new E.U members”, DIW Berlin Discussion papers 940.

Demirgüc-Kunt, A., & Detragiache, E., (1998). “Financial Liberalizaion and Financial Fragility”, IMF Working Paper 98/83.

Doucouliagos, H., (2005). “Publication Bias in Economic Freedom and Economic Growth”, Journal of Economic Surveys, 19 (3): 367-387.

Doucouliagos, H., & Standley, T. D., (2012). Meta-Regression Analysis in Economics and Business, Routledge: New York.

Doucouliagos, H., Haman, J., & Standley, T. D., (2012). “Pay for Performance and Corporate Governance Reform”, Industrial Relations, 51: 670-702.

Egger, M., G., Davey, S. G., Schneider, M., & Minder, C., (1997). “Bias in Meta-analysis Detected by a Simple Graphical Test”, British Medical Journal, 315: 629-634.

Eggoh, C. J., (2008). “Financial Development, Financial Instability and Growth: A reappraisal”, Law, Economics and Management Faculty, University of Orleans.

Estrada, G., Park, Donghyun., & Ramayandi, A., (2010). “Financial Development and Economic Growth in Developing Asia”. Asian Development Bank Economics Working Paper Series No. 233.

Favara, G., (2003). “An Empirical Reassessment of the Relationship between Finance and Growth”. International Monetary Fund Working Paper 03/123.

Florax, R. J. G. M., Travisi, C. M., Nijkamp, P., (2003). “A meta-analysis of the willingness to pay for reductions in pesticide risk exposure”. European Review of Agricultural Economics, 32: 441-467.

Goaied, M., & Sassi, S., (2010). “Financial Development and Economic Growth in the MENA Region: What about Islamic Banking Development”. Institut des Hautes Etudes Commerciales, Carthage.

Gondo, J., (2009). “April. Financial Development and Economic Growth: Evidence from South Africa: 1970-1999”,______________________________

Gorg, H., & Strobl, E., (2001). “Multinational companies and productivity spillovers: a meta-analysis”. Economic Journal, 111: 723-739.

Gregorio, J., & Guidotti, P. E., (1995). “Financial Development and Economic Growth”. World Development, 23(3): 433-448.

Guariglia, A., & Poncet, S., (2008). “Could financial distortions be no impediment to economic growth after all? Evidence from China”. Journal of Comparative Economics, 36: 633-657.

Hassan, K., Sanchez, B., & Yu, J., (2011). “Financial development and economic growth: new evidence from panel data”. The Quarterly Review of Economics and Finance, 51: 88-104.

Havranek, T., & Irsova, Z., (2010). “Meta-analysis of Intra-Industry FDI Spillovers: Updated Evidence”. Czech Journal of Economics and Finance, 60(2): 151-174.

Horvathova, E., (2010). “Does environmental performance affect financial performance? A meta-analysis”. Ecological Economics, 70: 52-59.

Huang, H., Lin, S., Kim, Dong. & Yeh, C., (2010). “Inflation and finance-growth nexus”. Economic Modelling, 27: 229-236.

Jalil, A., Wahid, A. N. M., & Shahbaz, M., (2010). “Financial Development and Growth: A Positive, Monotonic Relationship? Empirical Evidences from South Africa”. MPRA No. 27668.

Kaminsky, G., & Reinhart, C., (1999). “The Twin Crises: the Causes of Banking and Balance-of-Payment Problems”. American Economic Review, 89(3): 473-500.

Kemal, A. R., Abdul, Q., & Hanif, M. N., (2008). “Financial Development and Economic Growth: Evidence from Heterogeneous Panel of High Income Countries”. MPRA No. 10198.

King, R., & Levine, R., (1993). “Finance and Growth: Schumpeter Might Be Right?” The Quarterly Journal of Economic, 108: 717-737.

Leitao, N., C., (2010). Financial Development and Economic Growth: A Panel Approach. Theoretical and Applied Economics, 17(10:551): 15-24.

Levine, R., (1999). “Law, Finance and Economic Growth”. Journal of Financial Intermediation, 8: 8-35.

Levine, R., Loayza, N., & Beck, T., (2000). “Financial Intermediation and Growth: Causality and Causes”, Journal of Monetary Economics, 46(1): 31-77.

Liu, W., & Hsu, C., (2006). “The role of financial development in economic growth: The experience of Taiwan, Korea and Japan”, Journal of Asian Economics, 17: 667-690.

Loayza, N., & Ranciere, R., (2002). “Financial development, financial fragility and growth”, Research Department of the Central Bank of Chile.

Loayza, N., & Ranciere, R., (2004). “Financial Development, Financial Fragility and Growth”, CREI Working Paper No. 3431.

Lu, S. F., & Yao, Y., (2009). “The effectiveness of law, financial development, and economic growth in an economy of financial repression: evidence from China”. World Development, 37(4): 763-777.

Luintel, K., & Khan, M., (1999). “A quantitative reassessment of the finance-growth nexus: evidence from multivariate VAR”. Journal of Development Economics, 60: 381-405.

Lucas, R. E., (1988). “On the Mechanics of Economic Development”, Journal of Monetary Economics, 22: 3-42.

Mookerjee, R., (2006). “A meta-analysis of the export growth hypothesis”. Economic Letters, 91: 763-777.

Naceur, S. B., & Ghazouani, S., (2007). “Stock markets, banks, and economic growth: Empirical evidence from the MENA region”. Research in International Business and Finance, 21: 297-315.

Nguena, C. L., (2012a). “Pro Growth Monetary Policy in Africa: Monetarist versus Keynesian Approach”, MPRA Paper No. 49410

Nguena, C. L., (2012a). “Price Stability Objectives and Economic Growth: A Panel Data Econometrics Empirical Investigation for Selected CEMAC Countries”, MPRA Paper No. 49412.

Ram, R., (1999). “Financial Development and Economic Growth: Additional evidence”, Journal of Development Studies, 35(4): 164-174.

Schumpeter, J., (1911). The Theory of Economic Development, Cambridge, MA, Havard University Press.

Senia, N., (2012). “Finance and economic growth in Africa: a meta-analysis”, Global Conference on Business & Finance Proceedings, 7(1)

Shen, C., & Lee, C., (2006). “Same Financial Development yet Different Economic Growth-Why?” Journal of Money, Credit and Banking, 38(7): 1907-1944.

Stanley, T. D., (2008). “Meta-Regression Methods for Detecting and Estimating Empirical Effect in the Presence of Publication Bias”, Oxford Bulletin of Economics and Statistics, 70: 103-127.

Stanley, T. D., (2001). “Wheat from chaff: meta-analysis as a quantitative literature review”. Journal of Economics Perspectives, 15(3): 131-150.