Dynamic impact of financial development on economic growth: Heterogeneous panel data analysis of island economies
Abstract
The purpose of this study is to find whether there is any significant impact, be it short run or long run, of financial development (FD) on economic growth from nine island economies. Despite the vast researches on the FD and economic growth nexus, little has been known from the perspective of island economies. Therefore, this study has attempted to analyse the dynamic relationship by incorporating both time series and cross–sectional data from the island economies over the period of 30 years (1980 to 2009). This study employed error correction–based pooled mean group (PMG), mean group (MG) and dynamic fixed effect (DFE) model for analysing dynamic heterogeneous panel data. Results from the PMG estimates demonstrate that financial development has a negative short run impact on economic growth. Whilst in the long run, there is a positive and a homogenous effect of financial development on growth across the island economy.
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The structure of an economy has its own impact on the relationship between financial development and economic growth.
“Contemporary empirical evidence suggests that the structure of an economy has its own impact on the relationship between financial development and economic growth (Ibrahim and Alagidede 2018; Sohag et al. 2015).”
From Financial Inclusion and Economic Growth in Sub-Saharan Africa—A Panel ARDL and Granger Non-Causality Approach (2023) · cites this paper as Sohag et al. 2015
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Institutions and the financial development–economic growth nexus in sub‐Saharan Africa
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- Authors
- Sohag, K., Nabilah, A. B., & Begum, R. A.
- Affiliations
- National University of Malaysia (MY)
- University of Mauritius (MU)
- Venue
- International Journal of Economic Policy in Emerging Economies
- Publisher
- Inderscience Publishers
- Published
- 2015
- Volume
- 8
- Issue
- 1
- Pages
- 77
- ISSN
- 1752-0452 (ISSN-L)
- 1752-0460
- OpenAlex
- W2088569623
- Cited by
- 12
- References
- 29
- Citations by year
- 2025: 1 · 2024: 2 · 2023: 5 · 2021: 1 · 2020: 2 · 2018: 1
- FWCI
- 0.99
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- International Journal of Economic Policy in Emerging Economies (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
- Physical Sciences › Computer Science › Information Systems › Economic Growth and Development
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic Growth and Productivity
- Keywords
- financial development, economic growth, island economy, short-run and long-run effects, heterogeneous panel data, dynamic panel data, error correction model
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