Title :	Impact of financial development on economic growth
Material Type:	printed text
Authors:	Pushpam Dhungana, Author
Publication Date:	2017
Pagination:	104p.
Size:	GRP/Thesis
Languages :	English
Descriptors:	Economic growth
Class number:	338.9
Abstract:	The relationship between financial development and economic growth has received considerable attention in the past several decades. Development of financial system is an important for economic growth. The better financial services expand the scope and the improve the efficiency of innovative activity; they thereby accelerate economic growth (King& Levine, 1993b). It is clearly seen that the countries having a better financial system have a tendency to develop its economic growth more quickly and easily. Pagon (1993) detailed financial intermediation can distress economic growth by acting on the saving rate, on the fraction of saving channeled to investment, or on the social marginal productivity of investment. Country’s economy will gradually be raised if there is a good integrity between financial institutions, broad and deep capital markets, reduction in corruption and improved banks performance with better quality services. Favara (2003) studied the relationship between financial development and economic growth and found no evidence for the impact of financial development on growth patterns by using two financial development indicators i.e. liquid liabilites credit to private sector.According to Goldsmith (1969), there is positive correlation between financial development and economic growth and proved that the financial system is directly related to the supply and quality of financial intermediation. Dornbush and Reynoso (1989) argued that financial factors plays a dynamic role when financial instability becomes a governing force in the economy. In Nepalese context, the central bank i.e. Nepal Rastra Bank regulates the banking sector including commercial banks, development banks, finance companies and mircro credit development banks or institutions.Nepal should expand and improve their credit and investment system through appropriate regulatory and policy reforms in order to support higher economy growth (OanhThiVuong, 2013). Bhetuwal (2007) stated that financial sector reform was incorporated in macroeconoic polices to improve business conditions and enhance economic activities. According to Gautam (2014), financial development causes economic growth. In fact, financial development is the cause of economic growth in terms of short-term dynamics, while economic growth sustains financial development in long run.Shrestha (2005) examined the relatiionship between financial development and economic growth and found that financial development is positively related to growth and negatively associated to income equality and financial stability. The major objective of this study is to examine the relationship between financial development and economic growth in Nepal. In addition, this study is conducted to ascertain the co-integration between financial development and economic growth variables. The major sources of data are Quarterly Economic Bulletin published by Nepal Rastra Bank and an Economic Survey published by Ministry of Finance for the period of 1975 to 2015. Real gross domestic product and gross capital formation have been taken as an indicator for economic growth. Similarly, to measure the financial development five different proxy namely total loans, inflation, money supply, interest spread rate and government expenditure are used. The augmented dickey fuller test reveals that inflation is stationary at the level, whereas, other variables are stationary at first difference. This test also reveals that none of the variables are stationary at the second difference. The ARDL bound test shows that there is co-integration relationship between financial development and economic growth variables. Interest spread rate is negatively significant with economic growth in the long run as well as short run in the context of Nepal. This indicate that higher the interest spread rate lower will be economic growth in the long run as well as in short run. Similarly, government expenditure is positively significant with economic growth in long run indicating higher the government expenditure higher will be economic growth in long run and is insignificant in short run. However, money supply is positively significant with economic growth in short run and real gross domestic product in long run indicating higher the money supply in market higher will be economic growth in short run. Further, the result shows that inflation does not have an impact on economic growth in context of Nepal. Moreover, study reveals that the entire coefficients remain within the critical bound of stability parameter which depicts the stability of coefficient over the period, and the selected models are to be good. Therefore, the study suggests that the policy maker and concerned bodies should give emphasis on expenditure to increase the growth, reduce the spread rate and supply money in the market to increase growth and also look forward in the economic policies that enhance the speed of economic growth and uplift the living standard of people.

Impact of financial development on economic growth [printed text] / Pushpam Dhungana, Author . - 2017 . - 104p. ; GRP/Thesis.
Languages : English

Descriptors:	Economic growth
Class number:	338.9
Abstract:	The relationship between financial development and economic growth has received considerable attention in the past several decades. Development of financial system is an important for economic growth. The better financial services expand the scope and the improve the efficiency of innovative activity; they thereby accelerate economic growth (King& Levine, 1993b). It is clearly seen that the countries having a better financial system have a tendency to develop its economic growth more quickly and easily. Pagon (1993) detailed financial intermediation can distress economic growth by acting on the saving rate, on the fraction of saving channeled to investment, or on the social marginal productivity of investment. Country’s economy will gradually be raised if there is a good integrity between financial institutions, broad and deep capital markets, reduction in corruption and improved banks performance with better quality services. Favara (2003) studied the relationship between financial development and economic growth and found no evidence for the impact of financial development on growth patterns by using two financial development indicators i.e. liquid liabilites credit to private sector.According to Goldsmith (1969), there is positive correlation between financial development and economic growth and proved that the financial system is directly related to the supply and quality of financial intermediation. Dornbush and Reynoso (1989) argued that financial factors plays a dynamic role when financial instability becomes a governing force in the economy. In Nepalese context, the central bank i.e. Nepal Rastra Bank regulates the banking sector including commercial banks, development banks, finance companies and mircro credit development banks or institutions.Nepal should expand and improve their credit and investment system through appropriate regulatory and policy reforms in order to support higher economy growth (OanhThiVuong, 2013). Bhetuwal (2007) stated that financial sector reform was incorporated in macroeconoic polices to improve business conditions and enhance economic activities. According to Gautam (2014), financial development causes economic growth. In fact, financial development is the cause of economic growth in terms of short-term dynamics, while economic growth sustains financial development in long run.Shrestha (2005) examined the relatiionship between financial development and economic growth and found that financial development is positively related to growth and negatively associated to income equality and financial stability. The major objective of this study is to examine the relationship between financial development and economic growth in Nepal. In addition, this study is conducted to ascertain the co-integration between financial development and economic growth variables. The major sources of data are Quarterly Economic Bulletin published by Nepal Rastra Bank and an Economic Survey published by Ministry of Finance for the period of 1975 to 2015. Real gross domestic product and gross capital formation have been taken as an indicator for economic growth. Similarly, to measure the financial development five different proxy namely total loans, inflation, money supply, interest spread rate and government expenditure are used. The augmented dickey fuller test reveals that inflation is stationary at the level, whereas, other variables are stationary at first difference. This test also reveals that none of the variables are stationary at the second difference. The ARDL bound test shows that there is co-integration relationship between financial development and economic growth variables. Interest spread rate is negatively significant with economic growth in the long run as well as short run in the context of Nepal. This indicate that higher the interest spread rate lower will be economic growth in the long run as well as in short run. Similarly, government expenditure is positively significant with economic growth in long run indicating higher the government expenditure higher will be economic growth in long run and is insignificant in short run. However, money supply is positively significant with economic growth in short run and real gross domestic product in long run indicating higher the money supply in market higher will be economic growth in short run. Further, the result shows that inflation does not have an impact on economic growth in context of Nepal. Moreover, study reveals that the entire coefficients remain within the critical bound of stability parameter which depicts the stability of coefficient over the period, and the selected models are to be good. Therefore, the study suggests that the policy maker and concerned bodies should give emphasis on expenditure to increase the growth, reduce the spread rate and supply money in the market to increase growth and also look forward in the economic policies that enhance the speed of economic growth and uplift the living standard of people.