Essays on financial development and economic growth

Abstract

The relationship between nancial development and economic growth is analyzed in this dissertation. The rst essay investigates the roles of banking sector development and stock market development in economic growth and the role of economic growth in banking sector development and stock market development in 64 developed and emerging markets over the period 1994 2003 using dynamic panel data techniques. In emerging markets, a statistically signi cant and positive interdependence is observed both between banking sector development and economic growth and between stock market development and economic growth. The results show that in developed markets, although economic growth positively a ects nancial development, banking sector development and stock market development have no statistically signi cant e ects on economic growth, supporting the demand-following view. In the second essay, the role of futures markets in economic growth is investigated using both dynamic panel data and time-series techniques. Dynamic panel estimation results give evidence of a statistically signi cant and positive relationship between futures market development and economic growth. The results are consistent with models, which predict that well-functioning nancial markets promote economic growth. Time-series analyses results indicate that this relationship is more robust for the countries that have medium-sized futures markets. It is concluded that risk management through futures markets improves economic growth mostly in countries with developing futures markets.