Financial innovation and economic growth: Empirical evidence from China, India and Pakistan

Muhammad Rizwan Nazir, Aaron Tan, Muhammad Imran Nazir

Research output: Contribution to journalArticle

Abstract

This study investigates the causal relationship between financial innovation and economic growth in China, India, and Pakistan over the period of 1970-2016. Using an Autoregressive Distributed Lag (ARDL) bound testing and Granger causality-based Error Correction Model (ECM), this study finds that financial innovation generally has a positive and statistically significant impact on economic growth in the short-run and long-run. These results show that in the long run, monetary management and credit flow to the private sector play an essential role in economic growth. The trade openness and gross capital formation contribute considerably to the economic growth in China, India, and Pakistan. For robustness, this study also applies the Dynamic Ordinary Least Square (DOLS) and Fully Modified Ordinary Least Square (FMOLS) method. The findings of this study suggest that the financial sector plays an essential role in supporting innovation activity in Asian countries.
Original languageEnglish
Number of pages24
JournalInternational Journal of Finance and Economics
Early online date23 Jul 2020
DOIs
Publication statusE-pub ahead of print - 23 Jul 2020

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