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The Impact of Shadow Banking on Economic Growth: Evidence from Cross Country Data (2006–2018)

The Impact of Shadow Banking on Economic Growth: Evidence from Cross Country Data (2006–2018) Shadow banking has become an important part of many financial systems despite having contributed to the financial crisis of 2008/2009. This study analyzes the relationship between shadow banking and economic growth using a panel of 28 developed and emerging economies. We employ panel feasible GLS technique and find a positive association between shadow banking and economic growth in the long-run. Further, we test for the Finance–Growth relationship using Granger causality tests and find a bi-directional relationship between shadow banking and economic growth. Stock market development and bank credit also have positive bi-directional relationships with economic growth. Our findings emphasize the role of financial innovation in enhancing economic performance given a stable regulatory environment. We suggest regular review of macro-prudential policy to carter for new financial activities and also to allow for development of new financing techniques. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of International Commerce, Economics and Policy World Scientific Publishing Company

The Impact of Shadow Banking on Economic Growth: Evidence from Cross Country Data (2006–2018)

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Publisher
World Scientific Publishing Company
ISSN
1793-9933
eISSN
1793-9941
DOI
10.1142/S1793993320500106
Publisher site
See Article on Publisher Site

Abstract

Shadow banking has become an important part of many financial systems despite having contributed to the financial crisis of 2008/2009. This study analyzes the relationship between shadow banking and economic growth using a panel of 28 developed and emerging economies. We employ panel feasible GLS technique and find a positive association between shadow banking and economic growth in the long-run. Further, we test for the Finance–Growth relationship using Granger causality tests and find a bi-directional relationship between shadow banking and economic growth. Stock market development and bank credit also have positive bi-directional relationships with economic growth. Our findings emphasize the role of financial innovation in enhancing economic performance given a stable regulatory environment. We suggest regular review of macro-prudential policy to carter for new financial activities and also to allow for development of new financing techniques.

Journal

Journal of International Commerce, Economics and PolicyWorld Scientific Publishing Company

Published: Oct 22, 2020

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