Kul B. Luintel

Financial Development and Economic Growth: The Role of Stock Markets

Utilizing time series methods and data from five developed economies, we examine the relationship between stock market development and economic growth, controlling for the effects of the banking system and stock market volatility. Our results support the view that, although both banks and stock markets may be able to promote economic growth, the erects of the former are more powerful. They also suggest that the contribution of stock markets on economic growth may have been exaggerated by studies that utilize cross-country growth regressions.

A quantitative reassessment of the finance–growth nexus: evidence from a multivariate VAR

Abstract The long-run relationship between financial development and economic growth is examined in a multivariate vector autoregression (VAR) framework using 10 sample countries. Difficulties surrounding the cross-country regressions and bivariate time series studies are outlined. The long-run financial development and output relationships are identified in a cointegrating framework through tests of over-identifying restrictions. We find bi-directional causality between financial development and economic growth in all the sample countries, conclusions that stand distinct from those in the existing empirical literature. We attribute our findings to: (i) analysis of a higher dimensional system, (ii) a new method of identifying the long-run economic relationships, and (iii) a new approach to long-run causality testing.

Financial Development, Economic Growth and Banker Sector Controls: Evidence from India

This paper uses newly collected data from the Reserve Bank of India to examine the effects of various types of banking sector controls on the process of financial deepening. With the exception of a lending rate ceiling, these controls are found to influence financial deepening negatively, independently of the well-known effect of the real interest rate. Exogeneity tests suggest that financial deepening and economic growth are jointly determined. Thus, policies which affect financial deepening may also have an influence on economic growth. Copyright 1996 by Royal Economic Society.

The Direct Costs of Financial Repression: Evidence from India

This paper provides evidence that suggests that financial repression has substantial direct effects on financial development, independently of its well-known influence through the level of the real interest rate. It also demonstrates that the process of economic growth is not weakly exogenous with respect to financial development. Thus financial repression may impose real costs that are additional to those suggested by previous empirical studies.

Common stochastic trends between forward and spot exchange rates

Abstract The common trend analyses between the forward rate ( F t ) and the corresponding future spot rate of the same currency ( S t +1 ) have raised several issues: notably, the sensitivity of the cointegrating relation to a constant term and lag lengths and the non-stationarity of the risk premium. This paper addresses these issues more rigorously using the daily exchange rate of the pound Sterling vis-a-vis five major currencies viz. the Canadian dollar, French franc, German mark, Japanese yen, and US dollar. The appropriate deterministic term in the cointegrating space is identified through empirical tests. A robust cointegrating relation is found between F t and S t +1 ; however, the hypothesis of unbiasedness of forward rate could not be sustained. An alternative measure of risk premium is suggested and its stationarity is confirmed.

Are International R&D Spillovers Costly for the United States?

Coe and Helpman, among others, report positive and equivalent R&D spillovers across groups of countries. However, the nature of their econometric tests does not address the heterogeneity of knowledge diffusion across countries. We empirically examine these issues in a sample of 10 OECD countries by extending both the time span and the coverage of R&D activities in the data set. We find that the elasticity of total factor productivity with respect to domestic and foreign R&D stocks is extremely heterogeneous across countries and that data cannot be pooled. Thus, panel estimates conceal important cross-country differences. The United States appears to be a net loser in international R&D spillovers. Our interpretation is that when competitors catch up technologically, they challenge U.S. market shares and investments worldwide.

Does Financial Structure Matter

We address the issue of whether financial structure influences economic growth. Three competing views of financial structure exist in the literature: the bank-based, the market-based and the financial services view. Recent empirical studies examine their relevance by utilizing panel and cross-section approaches. This paper, for the first time ever, utilizes time series data and methods, along with the Dynamic Heterogeneous Panel approach, on developing countries. We find significant cross-country heterogeneity in the dynamics of financial structure and economic growth, and conclude that it is invalid to pool data across our sample countries. We find significant effects of financial structure on real per capita output, which is in sharp contrast to some recent findings. Panel estimates, in most cases, do not correspond to country-specific estimates, and hence may proffer incorrect inferences for several countries of the panel.

Financial structure and economic growth: evidence from time series analyses

This article examines whether financial structure influences economic growth. Recent empirical studies examine this issue by utilizing panel and cross-section approaches. We use time series data and methods, along with the dynamic heterogeneous panel approach in a sample of six low and middle income countries. We find that cross country data cannot be pooled and that financial structure significantly affects real per capita output. We also find that panel estimates, in most cases, do not correspond to country specific estimates, and hence may proffer incorrect inferences for several countries of the panel.

Heterogeneous ideas production and endogenous growth: an empirical investigation

We examine the dynamics of ideas production and knowledge-productivity relationship in a panel of 19 OECD countries. A new data set of triadic patents is used. We rigorously address the issues of cross-country heterogeneity and endogeneity. Domestic and foreign ideas stocks exert positive but heterogeneous effects on ideas production. We find evidence of duplicate RD however, this effect is modest for countries with sizeable ideas bases. An implication is that country-specific R&D policy appears potentially more effective than the one-size-fits-all approach.

Non-causality due to irrelevant lag polynomials

This letter illustrates that Granger causality tests tend to be sensitive to irrelevant lag polynomials and could lead to wrong inference of non-causality. In view of the little insight one gets from economic theory about short-run dynamics, it suggests exclusion restrictions prior to causality testing.