Financial systems and mechanisms of growth in different conditions of country risk

Cheng, Su-Yin, Hou, Han, Ho, Chia-Cheng and Westerlund, Joakim 2011, Financial systems and mechanisms of growth in different conditions of country risk, Applied economics letters, vol. 18, no. 11, pp. 1021-1028, doi: 10.1080/13504851.2010.522511.

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Title Financial systems and mechanisms of growth in different conditions of country risk
Author(s) Cheng, Su-Yin
Hou, Han
Ho, Chia-Cheng
Westerlund, JoakimORCID iD for Westerlund, Joakim
Journal name Applied economics letters
Volume number 18
Issue number 11
Start page 1021
End page 1028
Total pages 8
Publisher Routledge
Place of publication Abingdon, England
Publication date 2011-07
ISSN 1350-4851
Keyword(s) banking
capital flow
economic growth
error correction
financial system
panel data
stock market
Summary This article uses panel data from 1976 to 2003 to investigate the ways in which banking and stock markets influence economic growth in situations of high and low country risk. The mean and Standard Deviation (SD) of country risk are adopted to classify 28 countries into Low Risk Low Volatility (LRLV) and High Risk High Volatility (HRHV) subgroups. Through the technique of error correction-based panel co-integration developed by Westerlund (2007), several results are obtained. First, LRLV countries can expand the capitalization of stock market to enhance long-term economic growth. Second, HRHV countries, on the other hand, use two distinct strategies to promote long-term economic growth. Initially they develop their equity markets, which promote economic growth directly. Strengthened equity markets, in turn, aid in the development of credit markets, which subsequently brings an economic boom. Finally, regardless of selected subgroups, the contribution of stock market capitalization to economic growth appears to be substantially larger than that of bank credit, highlighting the importance of stock markets.
Language eng
DOI 10.1080/13504851.2010.522511
Field of Research 159999 Commerce, Management, Tourism and Services not elsewhere classified
Socio Economic Objective 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
HERDC Research category C1.1 Refereed article in a scholarly journal
Copyright notice ©2011, Taylor & Francis
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