Non-Linear Relationship Between Financial Development, Economic Growth and Growth Volatility: Evidence from Nigeria

2018 ◽  
Author(s):  
Oro Ufuo Oro ◽  
Paul Alagidede
Keyword(s):  
Economic Growth ◽  
Linear Relationship ◽  
Financial Development ◽  
Development Economic ◽  
Non Linear ◽  
Growth Volatility

scholarly journals Non-Linear Relationship between Financial Development, Economic Growth and Growth Volatility: Evidence from Nigeria

2018 ◽  
Author(s):  
Oro Ufuo Oro ◽  
Paul Alagidede
Keyword(s):  
Economic Growth ◽  
Linear Relationship ◽  
Financial Development ◽  
Financial Services ◽  
Policy Implications ◽  
Empirical Literature ◽  
Development Economic ◽  
Econometric Methods ◽  
Growth Volatility ◽  
The Relationship

The relationship between economic growth, growth volatility and financial sector development continues to attract attention in the theoretical and empirical literature. Over time, some studies hypothesize that finance has a causal linear relationship with growth. Recently several other authors contradict this claim and argue that the relationship that exists between finance and growth is nonlinear. We investigate these claims for Nigeria for the period between 1970 and 2015, using semi-parametric econometric methods, Hansen sample splitting techniques and threshold estimator. We observed no evidence of ‘Too much finance’ as claimed by many researchers in recent times. We show that the relationship between financial development and economic growth is U-shaped. This is equally true for the relationship between financial development and growth volatility. We also discuss policy implications of our findings and recommend financial innovations and decentralization of stock exchanges to boost access to financial services, in addition, improved regulation to enhance financial market efficiency.

The Nexus between Financial Development, Economic Growth and Energy Consumption in India: A VECM Technique

2020 ◽  
pp. 602-612
Keyword(s):  
Economic Growth ◽  
Energy Consumption ◽  
Financial Development ◽  
Consumer Price Index ◽  
Development Economic ◽  
Energy Prices ◽  
Vector Error Correction ◽  
Percent Increase ◽  
Growth Energy ◽  
The Impact

The demand for energy consumption requires efficient financial development in terms of bank credit. Therefore, this study examines the nexus between Financial Development, Economic Growth, Energy Prices and Energy Consumption in India, utilizing Vector Error Correction Model (VECM) technique to determine the nature of short and long term relationships from 2010 to 2019. The estimation of results indicates that a one percent increase in bank credits to private sector results in 0.10 percent increase in energy consumption and 0.28 percent increase in energy consumption responses to 1 percent increase in economic growth. It is also observed that the impact of energy price proxied by consumer price index is statistically significant with a negative sign indicating the consistency with the theory.

The impact of financial development, economic growth and energy consumption on environmental degradation

2015 ◽  
Vol 26 (5) ◽  
pp. 666-682 ◽  
Author(s):  
Madhu Sehrawat ◽  
A K Giri ◽  
Geetilaxmi Mohapatra
Keyword(s):  
Economic Growth ◽  
Energy Consumption ◽  
Financial Development ◽  
Environmental Degradation ◽  
Series Data ◽  
Development Economic ◽  
Content Type ◽  
Indian Economy ◽  
Long Run ◽  
The Impact

Purpose – The purpose of this paper is to investigate the impact of financial development, economic growth and energy consumption on environment degradation for Indian economy by using the time series data for the period 1971-2011. Design/methodology/approach – The stationary properties of the variables are checked by ADF, DF-GLS, PP and Ng-Perron unit root tests. The long-run relationship is examined by implementing the Autoregressive Distributed Lag bounds testing approach to co-integration and error correction method (ECM) is applied to examine the short-run dynamics. The direction of the causality is checked by VECM framework and variance decomposition is used to predict exogenous shocks of the variables. Findings – The empirical evidence confirms the existence of long-run relationship among the variables. Financial development appears to increase environmental degradation in India. The main contributors to environmental degradation are: economic growth, energy consumption financial development and urbanization. The results also lend support to the existence of environmental Kuznets curves for Indian economy. Research limitations/implications – The present study suggests that environmental degradation can be reduced at the cost of economic growth or energy efficient technologies should be encouraged to enhance the domestic product with the help of financial sector by improving environmental friendly technologies from advanced economies. Originality/value – This paper proposes to make a contribution to the existing literature through examining the relationship between financial development and environmental degradation in Indian economy during 1971-2011 by employing modern econometric techniques.

scholarly journals Foreign finance, economic growth and CO2 emissions Nexus in OECD countries

2019 ◽  
Vol 12 (2) ◽  
pp. 161-181 ◽  
Author(s):  
Faris Alshubiri ◽  
Mohamed Elheddad
Keyword(s):  
Economic Growth ◽  
Linear Relationship ◽  
Environmental Quality ◽  
Foreign Investment ◽  
Fixed Effects ◽  
Oecd Countries ◽  
Content Type ◽  
Non Linear ◽  
The Relationship ◽  
Threshold Point

Purpose This study aims to examine the relationship between foreign finance, economic growth and CO2 to investigate if the environmental Kuznets curve (EKC) exists as an empirical evidence in 32 selected Organization for Economic Co-operation and Development (OECD) countries. Design/methodology/approach This study used quantitative analysis to test two main hypotheses: H1 is the U-shape relationship between foreign finance and environment, and H2 is the N-shaped association between economic growth and environment. In doing so, this study used panel data techniques. The panel set contained 32 countries over the period from 1990 to 2015, with 27 observations for each country. This study applied a panel OLS estimator via fixed-effects control to address heterogeneity and mitigate endogeneity. Generalized method of moments (GMM) with fixed effects-instrumental variables (FE-IV) and diagnostic tests were also used. Findings The results showed that foreign finance and environmental quality have an inverted U-shaped association. The three proxies’ foreign investment, foreign assets and remittance in the first stages contribute significantly to CO2 emissions, but after the threshold point is reached, these proxies become “environmentally friendly” by their contribution to reducing CO2 emissions. Also, a non-linear relationship denotes that foreign investment in OECD countries enhances the importance, as a proxy of foreign finance has greater environmental quality than foreign assets. Additionally, empirical results show that remittances received is linked to the highest polluted levels until a threshold point is reached, at which point it then helps reduce CO2 emissions. The GMM and FE-IV results provide robust evidence on inverse U-shaped relationship, while the N-shaped relationship explains that economic growth produces more CO2 emissions at the first phase of growth, but the quadratic term confirms this effect is negative after a specific level of GDP is reached. Then, this economic growth makes the environment deteriorate. These results are robust even after controlling for the omitted variable issue. The IV-FE results indicate an N-shaped relationship in the OECD countries. Practical implications Most studies have used different economic indicators as proxies to show the effects of these indicators on the environment, but they are flawed and outdated regarding the large social challenges facing contemporary, socio-financial economic systems. To overcome these disadvantages, the social, institutional and environmental aspects of economic development should also be considered. Hence, this study aims to explain this issue as a relationship with several proxies in regard to environmental, foreign finance and economic aspects. Originality/value This paper uses updated data sets for analyzing the relationship between foreign finance and economic growth as a new proxy for pollution. Also, this study simulates the financial and environmental future to show their effect on investments in different OECD countries. While this study enhances the literature by establishing an innovative control during analysis, this will increase to add value. This study is among the few studies that empirically investigate the non-linear relationship between finance and environmental degradation.

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