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Role of Financial Sector in Economic Growth Noureen Adnan

Role of Financial Sector in Economic Growth Noureen Adnan. Outline. Introduction Financial development index & growth Existing Literature My contribution Variables Data, sources & methodology Empirical results Conclusion. Developed Financial System.

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Role of Financial Sector in Economic Growth Noureen Adnan

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  1. Role of Financial Sector in Economic Growth Noureen Adnan

  2. Outline • Introduction • Financial development index & growth • Existing Literature • My contribution • Variables • Data, sources & methodology • Empirical results • Conclusion

  3. Developed Financial System Promote Savings , offers hedging and diversification More funding to Private sector Reduce information, monitoring & transaction costs Introduction Economic Growth

  4. Financial Development index and Economic Growth (2008)

  5. Existing Literature

  6. Existing Literature

  7. My contribution Length of data Examined at levels Stationary series Growth rates

  8. Variables Growth Indicator: Log Real GDP DLog Real GDP Financial Indicators Bank Depth Privy Turnover Ratio Value traded Ratio Control Variables Inflation Expenditures to GDP Trade to GDP Exchange Rate regimes

  9. Financial development indicators Bank: is the extent to which the central bank versus commercial banks is distributing credit Depth: Depth measures the size of financial intermediaries and it is equal to the liquid liabilities of the financial system divided by GDP. Privy: is the allocated credit to private enterprises divided by GDP.

  10. Turnover ratio: is the total value of shares traded on country’s stock exchange divided by the stock market capitalization. Value traded Ratio: is the ratio of total value of shares traded on a country’s stock exchanges divided by GDP Financial development indicators

  11. ESDS Data Sets IMF International Financial Statistics World Bank Development Indicators • GDP (constant dollars) • GDP per capita • Banking Development indicators • Inflation • Fiscal to GDP (Government final consumption expenditure ) • Trade to GDP (sum of exports and imports to GDP)

  12. Other Data Sources • Ross Levine’s Data Sets • Rogoff’s Data Sets

  13. Sample • Panel data sets • 1960-2006 • Methodology • Panel data fixed effects, least square dummy variables • IPS unit root tests • Two stage least squares

  14. Model used for LSDVGit = αi + β’ Fit + ξit i= 1, …, N ; t= 1, …, T

  15. Conclusion It is found that the level of financial development positively effect the level of growth during the period of 1960 – 2006, whereas the endogeneity could not be proved .

  16. Future Aims Construction of financial development index by using principal component .

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