Abstract
This study aimed to examine the effect of financial development (FD) and private credit booms on economic growth. This study used the data of 58 countries (27 DCs and 31 LDCs), from the period 1973 to 2012, by applying the method of Panel Cointegration. This study involved the FD index made of four indicators of banking sector depth, activity, and efficiency indicators. The estimation results showed that LDCs gave more positively significant response to FD than DCs. This is because the LDCs’ financial systems are dominantly Bank based or their banking sector is more developed than other institutions and markets. Whereas, the credit boom to private sector (which is taken as indicator of FD) inversely affect the economic growth rate. Such relation can be caused by lack of credit recovery, more defaulting loans, insolvency, and huge public debt, that hence leads to a financial crash like that of 2008 financial crisis.
Syed Fareed Ullah, Shahid Mansoor Hashmi. (2016) FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH: PANEL CROSS - COUNTRY STUDY, Jinnah Business Review, Volume 4, Issue 1.
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