金融发展与经济增长实证分析的留学生作业指导_留学生作业

金融发展与经济增长实证分析的留学生作业指导

An Empirical Evidence Of Financial Development And Economic Growth

金融发展已被认为是经济增长的决定性因素之一。我们认为，在金融发展指标M1、M2和M3作为独立变量，提高经济增长。模式研究是基于单位根检验、协整检验、Granger因果关系检验。所有这些方法都用来知道金融发展与经济增长之间的关系是一个存在与不存在的问题。该数据将覆盖从1980至30，这是在马来西亚的2009年数据。

关键词：M1、M2、M3、单位根检验、协整检验、Granger因果关系检验金融发展、经济增长。

研究背景主要集中在经济增长和金融发展为因变量，自变量是M1、M2和M3。这两个依赖和独立的变量将被用来分析作为金融发展和经济增长的为这项研究提供实证。

ABSTRACT 摘要

Financial development has been considered as one of the major in determinant factor in economic growth. We consider indicators in financial development are M1, M2 and M3 as independent variable in enhance in economic growth. The modes understudied are based on unit root test, Cointegration Test and Granger causality tests. All of these methods used to know the relationship between financial development and economic growth is an existing or not. The data will cover from 1980 until 2009 which are 30 years data in Malaysia.

Keywords: M1, M2 and M3, Unit Root Test, Cointegration Test, Granger causality tests financial development, economic growth.

INTRODUCTION 简介

The background of the study focuses on the economic growth as dependent variable, and financial development as the independent variable which are M1, M2 and M3. Both dependent and independent variables will be used to analyze as an evidence of financial development and economic growth for this research.

The effects of the financial sector on real economy can hardly be over-emphasized: Goldsmith 1969). Long-run correlation between financial development and economic growth is evaluated in a theoretically based multivariate VAR model, a framework in which the analysis in the present paper relies heavily on Luintel and Khan (1999). The examine the long-run correlation between financial development and economic growth in a multivariate VAR framework, though the test is carried out using unit root tests and co-integration analysis in a panel-based vector error correction model (VECM) (Christopoulos and Tsionas 2004).

This study will use 30 years data which cover data from 1980 until 2009. The data were which is contain for dependent variable is economic growth which is more focus to gross domestic product (GDP) and independent variable are M1,M2, and M3 (obtained from Bank Negara Malaysia aka BNM).

The significance from this study will give impact to the economic growth because after does the econometric test used three method as just mention above to the financial development and its dependent variable its show that the variable its significance, means increase in the M1,M2 and M3 will give impact to the financial development and economic growth simultaneously.

Furthermore, from this study will also give benefit other researchers and students as a guide line to do research in the future?

LITERATURE REVIEW AND THEORETICAL FRAMEWORK

Introduction

The claim that financial development will rapidly increase economic growth in some years, this paper will examine whether this equation have evidence or not. Besides that, it is also find out the related financial development and economic growth through the equation provided.

According to Liang and Teng (2006), it's not easy to investigate various aspects for the finance-growth nexus since simply test the correlation among them, where it was used in most cross-country studies, and the limited natural in the cross-sectional technique can lead to spurious estimations. Furthermore it is already know correlation reveal nothing about causation. Besides that, according to Ang (2008) for developing countries, it face with the lack of sufficient time series data therefore the relationship between financial development and economic growth have been dominated by cross-country studies until recently. In these studies more focus given to the financial development which is its main features M1, M2, and M3 are an important to determine of the economic growth.

The main focused on these studies either to know whether the financial development plays a better or positive role in enhance economic growth or vice versa and examining the direction of causality between these three variables.

Literature Review 文献综述

In this study, we try to find the evidence causality between financial development and economic growth or does economic growth propel financial development, or no relationship among them or financial development and economic growth interrelated.

According to Patrick (1966), causality between financial development and economic growth base on the "supply-leading" hypothesis and demand following hypothesis. The supply-leading hypothesis is a relationship from financial development to economic growth, means the creation of financial institution and increases the supply of financial services markets; therefore it leads to real economic growth. In this phenomenon, was supported by McKinnon (1973), King and Levine (1993a, b), Neusser and Kugler (1998), and Levine et al. (2000), where their theoretical and empirical writing on study have shown that financial development is causes and important economic growth.

Economic growth effect to financial development through the "demand-following" hypothesis (Patrick 1966), where, when demand for financial services increase, it might induce an expansion in the financial sector as the real economy growth, for example financial sector responds passively to economic growth. This hypothesis was supported by Gurley and Shaw (1967), Goldsmith (1969), and Jung (1986).

Financial development and economic growth are positively related to each other, as Schumpeter (1911), Patrick (1966), Goldsmith (1969), MacKinnon (1973), Shaw (1973) and Ang (2008) the relationship between this two remains an important to each other in economic industry. Obviously, relationship between financial development and economic growth still no general consensus among economists. Because of that as a practical way to settle this controversy, empirical will be using Liang and Teng (2006).

Therefore, it is normal to use system of equations in the relationship between financial development and economic growth Ang (2008). The relationship between financial development and economic growth have been analyzed and it have a different aspect in theoretical and empirical studies for cross-nations as well as on industry and single country and firm level through time-series, dynamic panel techniques and cross sectional (Liang and Teng 2006).

A main point of empirical studies, mainly using cross sectional approaches, has been seen that the level of financial development is a best way to predictor of economic growth Beck, Levine, and Loayza, (2000) Gregorio and Guidotti, (1995) King and Levine, (1993); Levine, (2002). A numerous of recent journals on endogenous growth also demand the better role of financial intermediaries played to economic growth (Amable and Chatelain, 2001; Bencivenga and Smith, 1991; Bencivenga, Smith and Starr, 1995; Benhabib and Spiegel, 2000).

Besides the system of equation, it has a dual effect on economic growth in financial development Gregorio and Guidotti (1995). First, for the efficiency of capital accumulation markets must develop of domestic financial, hence increasing the marginal productivity of capital.

According to Goldsmith (1969), financial intermediation contributes to raising the savings rate, thus the investment rate hence increasing savings rate. It shows positive correlation between the level of real per capital GNP and financial development. He argues that, the process of growth has response effects on the financial markets through creating incentives to get further financial development.

From other perspective, De Gregorio (1993) and Jappelli and Pagano (1994) analyze effect of financial developments on savings rate. They focused on the effects of borrowing constraints - when not easy for individual to borrow against for the future income - on economic growth.

Half from individuals who is inability to borrow against future income prefer to increase savings; this is because to finance current consumption, individuals must have strong financial wealth through increase savings when that individual unable to borrow.

In this study, economic growth will be more focus to the monetary aggregate as a main feature for financial development which is M1, M2 and M3. Friedman and Meiselman (1963) have found that money is more correlated with consumption; this is significant to show that consumption will give impact to economic growth through uses of feature of financial development such as M1 and M2.

Using of equation, the use of this approach allow the test of a variety of channels that can give impact on the relationship between financial development and economic growth. The six equations, such as, financial development, private investment, private saving, saving investment correlation, foreign direct investment, and aggregate output are used in this basic model. This simple framework provides the link between financial development and economic growth. For every equation is formulated based on a theoretical model Ang (2008).#p#分页标题#e#

The inspiration that financial sector development promotes increase was first put forth by Joseph Schumpeter as early as in 1911. After that numerous studies have been investigated the relationship between financial sector development and economic growth. According to (Levine, 1997, p. 691) Contribution of financial development to economic growth in following ways: 1) financial markets allow small savers to pool funds, 2) wider range of instruments for saving can stimulating savers, 3) total wealth can rises as efficient allocation of capital is achieved as proportion of financial saving, and 4) financial market encourages development of entrepreneurship, specialization in production, and adoption of new technology.

There is, however, we a considerable debate how accurately financial development affects economic growth (Gupta, 1984; Spears, 1992). The structuralisms, led by Goldsmith (1969), are of the sight that financial development increases savings in the form of financial assets, by this means, encouraging capital formation and economic growth. Wallich (1969), Tun Wai (1972), Sinai and Stokes (1972) all of them have Empirical support for this hypothesis. The financial repressionists, led by McKinnon (1973) and Shaw (1973), they believe that the rate of return on real cash balances is the key determinant of the rate of capital formation and as a result, for achieving a high rate of growth.

GDP has a related in the financial development and economic growth, through the impact of financial development on GDP or per-capita income growth. Developed financial systems are associated with a crucial response to the domestic investment to push up in per capita GDP. The equation for the GDP model as follows:

GDP growth: ï¡ + b1R + b2T + b3C + e Eq. (2)

Where R is variable those are generally known as to explain growth such as human capital, financial development, per-capita income and investment. T is variable that is under study and affect growth, C is a variables used as control in the estimation, such government expenditure, exchange rate misalignments, inflation and openness, while e is the error term.

Role of the financial development is a crucial play in enhancing investment efficiency. Furthermore financial structure is independent effects to domestic investment through maintain the level of financial development with using conventional measure of financial intermediation. Both of the panel data regression and cross-section are using to test the effect of financial development on domestic investment Ndikumana (2005). The finding from the structure, he know that no independent effect on investment, means not enhance domestic investment to changes in per capita GDP for level of financial development and other than that in determinants of investment.

Independent variable

Financial development

The expansion in the financial system will give a big impact in increased demand for financial services. Based on Robinsons (1952) when an economy expands more financial product and services and financial institutions will emerge to greater demand for financial services.

The framework for McKinnon-Shaw suggests when interest rate controls may distort the economic in several ways. First, it will encourage entrepreneurs in potential high yielding investment projects but discourage from investing in high risk. Second, financial intermediaries will become too risk averse and will prefer lending to established borrowers. Third, if borrowers obtain their funds at low cost, they may prefer to invest in capital intensive projects only. But McKinnon (1973) and Shaw (1973) argue in favour of liberalizing the financial sector to removing interest rate controls and market can determine its own credit allocation in order to deepen their financial system.

Furthermore, some suggest that higher financial development may not depend on liberalizing rate. For example with deposit insurance and no control of interest rate may cause in overly lending behaviour among banks (Villanueva and Mirakhor, 1990; McKinnon and Pill, 1997). The restraints from interest rate may effect to increase financial saving in the presence of the best governance through financial system, Stiglitz (1994).

It is well known that financial liberalization needs part of financial development. The McKinnon-Shaw proposes that operation of the financial system is a restriction by the government, for example directed credit program, interest rate ceiling and high reserve requirements, and may hinder financial system. This may in turn affect quantity and quality of investments and slow down development in the financial systems.

However, financial liberalization may induce destabilization in cause financial crises and financial system (see Diaz-Alejandro, 1985; Villanueva and Mirakhor, 1990). Such as, financial liberalization programs by Latin American countries in the 1970s had cause in a numerous of institution bank failures and other bankruptcies. Financial system was severely undermined and interest rate soared. Because of that, financial liberalization can either to do deepen the financial system or financial fragility.

Overview of financial sector development

Since the impact of financial sector development is the main focus on economic growth, it is important to examine pattern and the magnitude of financial sector development in Malaysia. In general, the following are some of the financial sector development, 1) financial deepening, where growth of financial instruments are needed. It shows itself in increase volume of turnover and is measured by the ratio of monetary aggregates to GDP. 2) Financial broadening, increase in the number of financial instruments and financial institutions. 3) Financial liberalization, which means free movement of foreign capital, deregulation of interest rate, and removal other restrictive practices.

Base on Ansari (2002) he was highlights some of aspects of financial sector development which is relevant to this research. As shown in table 1, it was has a significant growth in all monetary aggregates in Malaysia over 1960 until 1996. In nominal term, as we can see quasi-money have grown the fastest followed by M2 and M1 in that order. But this pattern of monetary growth seems unaltered when we seen in real terms. A stable and steady growth in M1, which consists of demand deposits and currency in circulation, it will consider important in economic growth. High rate of economic growth in Malaysia has been caused by fast rate of growth of quasi-money, where consists of time deposits and savings.

THE METHODOLOGY AND DATA USED

In some existing literature, some people have been used many proxy variables to symbolize financial development. Base on Ansari (2002) there a fall into three broad categories, which are: 1) monetary aggregate, for example M1, M2, M3 and domestic credit, 2) currency ratio, means the ratio of currency to monetary aggregate, 3) monetization variable, means ratio monetary aggregates to national income.

In this study have chosen to rely on first category, because on this study more focus to monetary aggregates M1, M2, and M3 variables as independent data, this study want to find the evidence whether this variables have correlation with GDP as economic growth or not.

There are so many methods that researcher can be use to find the conclusion about their finding research. All of the methods will depend to the situation whether the data are significant or not. In this study, methods that will be uses are unit root test, Cointegration Test and Granger causality tests. All the methods will be test as both between dependent and independent variable, where GDP as dependent variable or M1, M2, and M3 as dependent variable. Example of an equation is;

GDPyt = Î±0 + Î±1 M11t + Î±2 M2t + Î±3 M3t + É›t

M1t = Î±0 + Î±1 GDPt + É›t

M2t = Î±0 + Î±1 GDPt + É›t

M3t = Î±0 + Î±1 GDPt + É›t

First of all method that will be use is unit root test; this is the basic method to find the significant data among the variables and whether data is stationary or nonstationary. After find the result, the data was significant and stationary. Therefore we try to use other method is cointegration test method, it show that cointegration was exists among the variables in the long run relationship.

To test Granger causality we need stationary time series. According to Granger and Newbold (1974) and Phillips (1986) the use of non-stationary variable in a given model will leads to the spurious regression. Any non-stationary time series can achieve stationary if differenced appropriately (Granger, 1986). We can apply Phillips-Perron test in determine the proper order of differencing for any variable.

When both variables are changed to stationary time series, Granger causality can be test by employ the standard Granger causality test.