FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH: EVIDENCE FROM G20 COUNTRIES

After recurring financial crises that have gripped developed and developing economies alike in the past 20 years, economists, academics and those interested in the overall economic growth process have become increasingly skeptical about the ability,of the modern financial system to generate,economic growth. Since then, there has been renewed interest in re-examining the nature of the relationship between the development of this system and economic growth, and evaluating such a relationship in many aspects, including the structure of the financial system and its impact on economic growth in short and long-term periods, and the relationship between the components of the financial system itself. Moreover, attention has also been paid to the channels through which the financial system may stimulate and accelerate the process of economic growth. Therefore, this study presents a new analysis that examines these three related aspects in G20 countries to provide a deeper and more comprehensive understanding of the relationship between financial system development and economic growth. The G20 countries were selected as a sample for this study to benefit from the presence of developing and developed countries within the sample, therefore, the findings can be generalised, and compared with the results of other similar studies.

In addition to introductory, theoretical and methodology chapters, this study presents three empirical chapters. In the fourth chapter of this thesis the long and short-term influences of financial system development on growth by using ARDL estimation method. Chapter five explores the inter-relation between the banking sector and stock market development. The econometric methodology is based on a Granger causality technique and an FMOL estimator. Finally, by developing eleven regressions and using both GMM and 2-SLS estimation approaches, chapter six investigated the role played by financial structure in influencing the relationship between foreign and national investment and the total growth rate.