The present paper analyzes theoretically and empirically the link between financial development and economic growth in the Ivorian economy. To that end, the contribution of financial development to economic growth is assessed through the broad money (M2) as percentage of GDP ratio (M2/GDP), private credit on domestic credit (CE/CI), liquid liability of out of gross domestic product (DQM/M2), indicating the banking system’s expansion in the mobilization of saving. The analysis is carried through a VAR model.
Key words: Financial development, Economic growth, Velocity of money, risk.
JEL Classification: C32, F41, F43
Table of Contents
1. Introduction
2 – Analysis of the determinant of the financial development
2.1 Theoretical Analysis
2.2 - Empirical Analysis
3 – Model, data and results
3.1 Model
3.2 Data and econometric results
4 – Conclusion
Research Objectives and Topics
The primary objective of this study is to analyze the relationship between financial development and economic growth within the Ivorian economy using a Vector Auto Regressive (VAR) model covering the period 1962–2008. The research aims to identify long-term dynamics and assess the impact of financial sector indicators on economic performance.
- Theoretical and empirical analysis of financial development determinants.
- Econometric modeling using the VAR approach and cointegration tests.
- Assessment of the causality direction between financial sector expansion and economic growth.
- Analysis of dynamic interactions via impulse response functions and variance decomposition.
Excerpt from the Book
1. Introduction
The link between financial development and economic growth have been highlighted by the work of Bagehot (1873), Schumpeter (1912) by relying on the identification and funding of most productive investments. Later, the thesis of Robinson (1952) argued to the contrary: that financial development is a consequence of economic development. It is from this point that controversy arose over the direction of causality between growth and financial development.
Goldsmith (1969), Gupta (1984) and Spears (1992) are the first to show that financial development precedes the development referring to the economic role that the financial sector has in the economic development process. According to these authors, the primary role of a financial system is to promote and mobilize savings, main component in the formation of capital. The financial system plays fully this role when it is developed, but if it is under developed it does not encourage economic agents to mobilize savings. The second role is to efficiently allocate collected savings to projects whose internal rate of return is greater than the opportunity cost of money. The effectiveness of a financial system is to reduce the financial cost for borrowers and select the most profitable projects. It just comes out that, the greater the financial system will be efficient in allocating resources, the greater the productivity of capital and the stronger economic growth. The third role allocated to the financial system is the management risks through the allocation of collected savings to profitable projects in many areas.
Summary of Chapters
1. Introduction: This chapter introduces the historical academic debate regarding the causality between financial development and economic growth and outlines the study's specific objectives for the Ivorian context.
2 – Analysis of the determinant of the financial development: This section provides a theoretical framework for how financial systems facilitate growth, followed by an empirical review of existing indicators and literature on the subject.
3 – Model, data and results: This chapter details the econometric methodology, specifically the Vector Auto Regressive (VAR) model and cointegration tests, and presents the empirical findings based on Ivorian macroeconomic data.
4 – Conclusion: The conclusion summarizes the main findings, confirming a long-term relationship between financial sector variables and economic growth while acknowledging the exogenous nature of the Ivorian financial sector.
Keywords
Financial development, Economic growth, Velocity of money, Risk, VAR model, Ivorian economy, Financial intermediation, Cointegration, Granger causality, Capital productivity, Banking sector, Macroeconomic data, Savings mobilization, WAEMU, Vector error correction.
Frequently Asked Questions
What is the core focus of this research?
The research focuses on investigating the theoretical and empirical relationship between financial development and economic growth specifically within the context of the Ivorian economy.
What are the primary themes discussed?
The study covers themes such as the role of financial systems in mobilizing savings, the allocation of capital, the impact of financial liberalization, and the legal/regulatory environment for banking.
What is the main research objective?
The goal is to determine the long-term dynamics between financial development and economic growth and to analyze the specific impact the financial sector has on the Ivorian economy's growth rate.
Which scientific method is utilized?
The author employs a Vector Auto Regressive (VAR) model, along with cointegration tests (Johansen procedure) and variance decomposition to analyze the data.
What does the main body cover?
The main body covers the theoretical channels through which finance affects growth, the empirical indicators of financial development, and the presentation of econometric results based on 1962-2008 data.
Which keywords characterize the work?
Key terms include Financial development, Economic growth, VAR model, Ivorian economy, and Financial intermediation.
What did the Granger causality tests reveal for Côte d'Ivoire?
The tests revealed that economic growth causes the Ivorian financial sector development and vice versa, suggesting a bidirectional relationship at the 5% significance level.
How does the author interpret the exogeneity of the financial sector?
The author finds that the Ivorian financial sector is relatively exogenous, which implies that unidentified factors beyond the model may play a decisive role in its evolution.
What do the impulse-response functions suggest?
The IRF results indicate that the development of the financial sector provides necessary liquidity and contributes to both economic growth and the growth of quasi-money availability.
- Arbeit zitieren
- Denis Foade (Autor:in), 2011, Financial Development and Economic growth in Cote d’Ivoire: The case of a Small Economy, München, GRIN Verlag, https://www.hausarbeiten.de/document/168427
