In this article, we discuss some of the determinants of financial structure, and how that structure might affect economic growth. Financial disintermediation and financial fragility. This study provides evidence on the role of financial development in accounting for economic growth in low, middle, and highincome countries. The study focused on the post1978 reform period, using provincial data 28 provinces over the period 1985 to 1999. This paper seeks to examine the impact of financial intermediation on economic growth in nigeria. Evidence from western africa article pdf available in applied financial economics 1511. Costly financial intermediation in neoclassical growth theory. It has been observed that financial intermediaries play an important role in supporting entrepreneurs who start innovative activities such as new businesses. Obviously, financial development will be positive for economic growth. Financial intermediation as a financial system aims at the enhancement of mobilization of. Using various indicators of financial development, this paper investigates the role of financial intermediation in stimulating economic growth in southern africa. I trace the origin of trade from the primitive barter system to its evolution through money to the dominant economic system of capitalism and the role of financial intermediation in such a system. Development of financial intermediation and economic growth.
There exist however two other channelsthe substitution of loans for state budget appropriation and the mobilization of households savingsthrough which the development of financial intermediation spurs chinas economic growth. A disintermediary often allows the consumer to interact directly with the producing company. Financial disintermediation and financial fragility kosuke aokiy university of tokyo kalin nikolovz european central bank february 2015 abstract this paper investigates how expanding the corporate bond market and the shadow banking sector a ect the susceptibility of the nancial system to crisis. Financial development and economic growth in ghana. Financial intermediation and endogenous growth valerie r. Therefore, rather than look for individuals to borrow a sum, it is more efficient to go to a bank a financial intermediary to borrow money. Pagano 1993 argues that financial intermediation impacts economic growth by influencing the savings rate, i. Empirical evidence from nigeria 37 mckinnon 1973 in his study argued that there is a complimentary relationship between physical capital and money that is reflected in money demand. Financial intermediation and economic growth in less. Nber working paper series financial intermediation gary.
Impact of financial intermediation on nigeria economic growth chapter one introduction 1. The empirical study of the impact of intermediation roles of banks on economic growth. A study on the impact of financial intermediation on economic. Pdf impact of financial intermediation on economic. The main trust of this view is that, the existence of a positive causal link flowing from financial intermediation to economic growth is well acknowledged by the supplyleading argument of the financegrowth. By running the regression of economic growth rates on labour force growth, capital stock growth, and capital stock growth multiplied by real. The bank raises funds from people looking to deposit money, and so can afford to lend out to those individuals who need it. Role of financial intermediation in capital formation and. Koetter and wedow 2010 by using bank specific efficiency estimates for determining the bank quality in germany. Pdf financial intermediation and economic growth in nigeria.
The results lend some support to the hypothesis that financial development is positively correlated with the growth. It had become clear at the beginning of the 1980s that financial sector policies implemented in the 1960s through to 1970s had failed to mobilize resources for economic growth and had also left a very shallow financial system with no room for improved deepening of the sector. Financial intermediation and its implications on economic growth in nigeria ass. One interpretation of our model would be a theory of growth with financial intermediation. Does the quality of the banking sector in a province affect its rate of growth. Financial intermediation and economic growth medicare gcode. Moreover, stock market development and economic growth are positively associated in both middle and highincome countries. Curiously, renewed interest in economic growth in the post second world war saw a development in the literature that completely ignored the role of financial intermediation. This model states that firms and households interact through markets and financial. Forgha, njimanted godfrey, molem christopher sama, and nkwetta ajong aquilas. This paper tries to fill that gap, by using causality tests to empirically examine the relationship between finance and economic growth, in. The evolution of banks and financial intermediation. Time series data from 1970 to 2010 were used and were gathered from the cbn publications.
The purpose of this study was to establish the role of financial intermediation in promoting the growth of small and medium manufacturing enterprises in kenya. From the end of the 1980s even more writers try to understand and also establish the relationship between economic growth and financial development either studying the banking sector or the stock market separately, either both of them simultaneously. Role of financial intermediaries role in economic development 1. Our results do not favor models that emphasize the potentially growthretarding impact of nancial development. This paper presents an overview of the current issues in economic research on the relationship between financial intermediation, growth and employment with a focus on the macroeconomic aspects. Saifedean ammous1 abstract bitcoin is the first technology for the final transfer of digital goods online, facilitating the.
Namely, in the last two decades or so, with progress in econometric research on economic growth, and development of endogenous growth theory, many papers examining the link between financial intermediation and economic growth have been published, and interest in the topic does not diminish. Smith cornell university and rochester center for economic research first version received august 1989. Financial intermediation and endogenous growth the. Financial intermediation and economic growth in southern. Introduction hile the term the great recession has been loosely applied to almost every economic downturn in the past twenty years, the crisis of 200709 hasmore than most.
Galbis international monetary fund in stressing the importance of financial intermediation in the development of the ldcs, neither the approach of financial deepening nor that of real interest rates has clarified the relationship between financial intermediation and real development. In our paper we capture the four aspects of finance depth, access, efficiency and stability to. The focus of these studies is the link between financial development and economic growth. An econometric investigation in to financial intermediation, domestic investment and economic growth in. Anything that removes the middleman intermediary in a supply chain.
Additional aspects of financial system such as access, efficiency and stability should be taken into account in order to shed light into the relationship between finance and economic growth. The effects of introducing financial intermediation into this environment are considered. The relationship between finance and economic growth has received considerable attention in economic development literature during recent decades. Chinese style genevieve boyreaudebray world bank, development research group 1818 h street, n.
The answer lies in the modest view of financial intermediation, which opines that financial. Financial intermediation, economic development and business cycles fluctuations oriol aspachsbracons a thesis submitted to the department of economics of the london school of economics for the degree of doctor of philosophy, london, october 2008. Pdf 1mb cited by boyreaudebray analyzes the relationship between growth and financial intermediation at the subnational level within china. Pdf financial intermediation and economic growth in sri. Santomero the wharton school, university of pennsylvania, philadelphia, pa 19096, usa abstract traditional theories of intermediation are based on transaction costs and asymmetric information. The theory of financial intermediation completely disqualifies the traditional arrowdebreu model of resource allocation. Financial intermediation gary gorton, andrew winton. This paper set out to empirical investigate the relationship between financial intermediation and economic growth in nigeria using time series data spanning from 1986 to 2014. Pdf financial intermediation and economic growth in.
Financial intermediation has certain characteristics, among those, we can. Financial intermediation the national bureau of economic. They are designed to account for institutions which take deposits or issue. We also present evidence concerning the legal, regulatory, and policy determinants of nancial development. Financial intermediation and economic growth in sri lanka conference paper pdf available june 2019. The main objective of this study is to investigate the effect of financial intermediation on economic growth in nigeria. An 5 empirical investigation, 19702011 6 7 safiat ali saber ali 8 9 department of economics, university of gezira, wad medani, sudan 10 email. We find that banks and markets foster economic growth in a complementary way, but also that there comes a point of negative returns. Anwar hood ahmed and moses kimani wafula accountant jomo kenyatta university of agriculture and technology, mombasa cbd campus, p. It also conflicts with the continuing and increasing economic importance of financial intermediaries.
Presents a model that is suitable for evaluating not only the total effects of financial intermediation on economic growth, but also the channels through which the effects are brought about. Financial intermediation gary gorton and andrew winton nber working paper no. Finance can stimulate the main drivers of growth such as capital and total factor productivity. This complimentarily relationship according to mckinnon. Besides the performance of specialized tasks, several theoretical models posit that they mitigate the costs associated with information acquisition and the conduct of financial. This paper tries to fill that gap, by using causality tests to empirically examine the relationship between finance and economic growth. The empirical study of the impact of intermediation roles of.
The economic agents invest the funds in productive economic activities which yield returns and boost economic growth. An endogenous growth model with multiple assets is developed. This study examines the long run and short run dynamics between financial intermediation development and economic growth in nigeria using annual time series data spanning the period 19702015 by employing the var testing approach, johansen co. Pdf financial intermediation development and economic. However, little interest has been devoted to african countries, and specifically, to west african countries.
Role of financial intermediaries in economic development. There is a growing concern as to whether the cost of financial intermediation. Macroeconomics and economic growth, finance and financial sector development, private sector development. This opposite relation implies that the arab banking systems in their globality are not able to finance their economies to. The paper examines the empirical relationship between the level of development by financial intermediaries and economic growth in nigeria. Financial intermediation and economic growth in cameroon. Bank credit maturity and its determinants by nikola tasic a dissertation submitted in partial fulfillment of the requirements for the degree of doctor of philosophy in the andrew young school of policy studies of georgia state university georgia state university 2007.
First, the conventional view of the supplyleading hypothesis postulates that the direction of causality flows from financial development to economic growth. While past work shows that the level of nancial development is a good predictor of economic growth king and levine, 1993a, b. The paper concludes with a brief summary of the theoretical and empirical findings. To the best of our knowledge this is the first such extension. D, hcib department of accountingfinance, faculty of management and social sciences godfrey okoye university, enugu abstract. Nwite, acii, acib department of banking and finance, faculty of management sciences, ebonyi state university. For the analysis, the unit root test and cointegration test. Therefore, it seems that a wellfunctioning financial system may not always be sufficient to achieve economic growth in highincome countries, while it promotes economic growth in developing countries.
Economics beyond financial intermediation digital currencies possibilities for growth, poverty alleviation, and international development dr. Mandel, and lindsay mollineaux 3 regulations role in bank changes peter olson 21 the rise of the originatetodistribute model and the role of banks in financial intermediation. Financial intermediation and economic growth in developing. This paper evaluates 1 whether the exogenous component of financial intermediary development influences economic growth and 2 whether crosscountry differences in legal and accounting systems e. How we measure reads a read is counted each time someone views a. The role of financial intermediation has been exemplified in numerous literatures of finance. Financial intermediaries, by providing finance for starting selfemployment programmes are generating more production and income in the country. Financial intermediation and economic growth in less developed countries. Effect of financial intermediation on economic development. Finally, this papers ndings highlight nancial reform. Intoduction the views of positive effects of financial development on economic growth can be. Financial intermediation development and economic growth. A case study of nigerian experience 200320 12 3chioma dorothy oleka, eyisi adanma sabina and clementine ngozi onyeze 1department of banking and finance, faculty of management sciences, enugu state university of science and technology esut, enugu nigeria.
An econometric investigation in to financial intermediation, domestic investment and economic growth in cameroon. In addition, intermediaries generally reduce socially unnecessary capital liquidation, again tending to promote growth. This contrasts with the practitionersview of financial intermediation as avaluecreating economic process. But financial structure the particular blend of the two intermediation channels varies across countries. It was schumpeter, who put the role of financial intermediation at the center stage of economic development. Impact of financial intermediation on nigeria economic growth 19812016, download the full project work from chapter one to five. G0, g2 abstract the savingsinvestment process in capitalist economies is organized around financial intermediation, making them a central institution of economic growth.
Namely, in the last two decades or so, with progress in econometric research on economic growth, and development of. All financial systems combine bankbased and marketbased intermediation. Financial structure and growth bank for international. Research paper financial intermediation and economic growth.
Then, what is the role of financial intermediaries. Agents who face random future liquidity needs accumulate capital and a liquid, but unproductive asset. Functions and examples of financial intermediaries. The role of financial intermediation in economic growth has been widely recognized in theoretical and empirical research. The problems of lack of efficiency and effectiveness of mobilizing resources lead to unemployment, instability, and underdevelopment of the nigeria economy. Financial depth does not fully reflect how well the financial intermediaries serve to economic agents in stimulating economic growth. Financial intermediation, economic development and business. The output of our empirical analysis reflect that all the data used in the process of research are stationary after first differencing in the order of 1 1, the output of the ols shows that m2 and iir has a positive and. Corporate finance the savingsinvestment process in capitalist economies is organized around financial intermediation, making them a central institution of economic growth.
This study tests for causality between financial intermediation and economic growth in nigeria between 1990 and 20. Financial intermediation and economic growth by leyla. Impact of financial intermediation on nigeria economic growth. A wellknown paper by ross levine 19972 explains how financial intermediary solves the market frictions and creates opportunities for economic growth. Utilising the todayamamoto granger noncausality test, it reveals that causality is absent between financial intermediation and. Financial intermediation and economic growth in nigeria. Given the large amount of recourses used in intermediation we consider this to be an important extension of the existing growth models. Thus, when the variables of banking intermediation increase, economic growth decreases. Employment growth is a sign of economic development. Financial intermediation is an activity through which an institutional unit acquires financial credit and simultaneously, contracts engagements on its own account by means of financial transactions on the market biales, 2006. This paper uses new data and new econometric procedures to shed considerably more light on the issue of causality while also illuminating a close empirical association between key. Introduction a large literature on development and early industrialization asserts that the extent of financial intermediation in an economy is an important. The study suggested that these quality measures have positive significant effect on economic growth in germany. The impact of financial intermediation on economic growth.
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