This study assessed the impact of financial innovation on the economic growth prospects of cameroon. Corporate finance, economic fluctuations and growth, international finance and macroeconomics. The first runs from economic growth to human development and is fueled by household and government expenditures, heavily. Balancing financial stability, innovation, and economic growth fsieg led in partnership with oliver wyman, fsieg aims to bring together. Is financial innovation necessary for sustaining economic growth. Policy responses that reflect such attitudes and discourage innovation risk triggering economic stagnation, decreased economic dynamism. Financial innovation and endogenous growth luc laeven, ross levine, and stelios michalopoulos december 5, 20 abstract we model technological and nancial innovation as re. Financial intermediation and economic growth in southern africa, federal reserve.
The series deals with key economic and development problems, particularly. The within and between effect of adopting cheque payment, telegraphic transfer, card payment and electronic money on these eus economy are examined by applying the pedroni. Financial innovation expands economic activities through promoting financial inclusion, facilitating a financial transaction in international trade, enabling remittance and uplifting. It is argued that national financial systems have an impact on the structure of growth through their differing abilities to promote innovation in sectorspecific technology regimes. Innovation is essential for sustainable growth and economic development.
Studies on financial innovation and economic growth the interaction of innovations in both the. Financial innovation and endogenous growth school of social. The effect of financial innovation on economic growth in kenya. Financial innovation and endogenous growth stelios michalopoulos, luc laeven, and ross levine may, 2011 abstract we model technological and nancial innovation as re. Financial innovation is positively related to economic growth through gross capital formation, but demonstrates no significant link with per capita gdp growth or new firm density. The role of financial innovation on economic growth in developing countries has. Although the relationship between financial development and economic growth has received widespread attention in the modern history of economics, the conclusions have been far from conclusive. For decades, african economies have embarked on financial sector reforms. To address this ques tion, we build a schumpeterian model in which.
Policy responses that reflect such attitudes and discourage innovation risk triggering economic stagnation, decreased economic dynamism, and lower living standards. The shadow banking system has spawned an array of financial. Full length research article this study assessed the impact of financial innovation on the economic growth prospects of cameroon. Financial innovation, economic growth, and the consequences. Balancing financial stability, innovation, and economic growth fsieg.
A test of the impact of financial innovation on economic growth. Innovation, therefore, in the economy treated as the drive of improving productivity accelerates the process of economic growth silve and plekhanov2014. Financial development, financial openness, and economic growth. Financial innovation and economic growth in the sadc taylor. The study adopted domestic credit to private sector. Financial innovation and economic growth in bangladesh. Key words agentbased models, innovation, exploration vs.
There are really two channels to be considered here. The within and between effect of adopting cheque payment, telegraphic transfer, card payment and electronic money on these eus economy are examined by applying the pedroni residual cointergration and panel. Financial sector reform is generally considered good for the economy as it engenders financial innovation and promotes efficiency in the financial system, potentially leading to higher economic growth. Evidence from zimbabwe article pdf available in investment management and financial innovations 2. The role of financial innovation on economic growth in developing countries has not been actively pursued. The model also allows for rentseeking financial innovation, in which.
Financial development has played a leading role in many economies of less developed countries ledcs and africa especially. Pdf this study empirically establishes the causal relationship between financial innovation and economic growth in the sadc. Financial innovation and endogenous growth harvard business. On the pro side of the proposition were myron scholes, the chairman of platinum grove and robert reynolds, the ceo of putnam, and on the con side were jeremy grantham, the ceo of gmo and me. Bank competition, financial innovations and economic. While there is a firm consensus that a wellfunctioning financial sector is a precondition for. Financial innovation, stock market development, and. Financial development, financial openness, and economic. In this paradigm, growth reflects the decisions of profitmaximizing entrepreneurs, who determine how much to invest in the costly, risky and potentially lucrative process of innovation. Mar 04, 2019 most economists agree that technological innovation is a key driver of economic growth and human wellbeing. That is why financial innovation is treated as a prime catalyst.
The model predicts that financial innovation is necessary for sustaining economic growth. The dynamic economic environment is immensely influenced by rapid innovation, especially financial innovation in the financial system, both in terms of number and value blach 2011. Corporate finance, economic fluctuations and growth, international finance and macroeconomics is financial innovation necessary for sustaining economic growth. Stemming from the finance growth nexus, literature suggests that financial innovation has a relationship to growth, which could be either. The contribution of financial markets in this area is a necessity for maintaining the competitiveness of an economy today given the strongly increased international competition, rapid technological progress and the increased role of innovation for growth performance. Balancing financial stability, innovation, and economic growth. The proposition for the debate was financial innovation boosts economic growth. In recent years the relationship between financial development and economic growth has become an issue of extensive analysis. This study empirically establishes the causal relationship between financial innovation and economic growth in the sadc. In the modern economy, innovation is crucial for value creation, growth and employment and innovation processes take place at the enterprise, regional and national level. That is, the primary determinants of longrun growth are the entrepre.
The adb economics working paper series is a forum for stimulating discussion and eliciting feedback on ongoing and recently completed research and policy studies undertaken by the asian development bank adb staff, consultants, or resource persons. Potential impact of financial innovation on financial. Panel granger causality tests establish that there is no causality, in any direction, between. Financial innovation expands economic activities through promoting financial inclusion, facilitating a financial transaction in international trade. There is even evidence that the approach focuses on the ties between growth and the level of financial development is a good predictor of quality of the functions provided by the financial system.
Financial innovation and economic growth in bangladesh econstor. Financial innovation, stock market development, and economic. Since the 1960s and 1970s, much of this change has come from technologyenabled innovation. Pdf the role of financial innovation on economic growth in developing countries has not been actively pursued. Financial innovation and economic growth in the sadc.
Financial innovation also allows for the expansion of financial services through the development of new financial institutions, financial instruments, financial reporting, technology, and market knowledge michalopoulos et al. Economic growth measures growth in monetary terms and looks at no other aspects of development ayres, robert, warr, and benjamin, 2006. Financial innovation helps economic growth by allowing for capital mobilization, efficient financial intermediation, capital accumulation, and enhanced overall efficiency in financial institutions. It may seem obvious that if innovation promotes economic growth, financial innovation must also promote economic growth. The study adopted domestic credit to private sector dcp, the ratio of broad money as a percentage of gdp m2 and mobile banking mb penetration. Using an autoregressive distributed lag ardl model, estimated by pooled mean group and dynamic fixed effects, the study finds that financial innovation generally has a positive relationship with economic growth in the long run for the. Financial innovation, economic growth, autoregressive distributed lag, mobile banking mb. Recent financial innovations include hedge funds, private equity, weather derivatives, retailstructured products, exchangetraded funds, multifamily offices, and islamic bonds. In addition, we employed the ardl cointegration procedures to enable us establish both shortrun and longrun relationship between bank competition, financial innovations and economic growth. Financial sector reforms, competition and banking system. This investigation was carried out using three common indicators of financial development. Financial development and innovationled growth 5 2008. Technological innovation, a major force in economic growth it is taken as axiomatic that innovative activity has been the single, most important component of longterm economic growth and this paper will start by drawing upon the findings of a very influential paper published by my colleague at stanford, prof.
Negative cultural attitudes about technology and its disruptive effects could threaten reaping these benefits. Most economists agree that technological innovation is a key driver of economic growth and human wellbeing. The empirical evidence is more consistent with our model of the joint, endogenous evolution of financial and technological innovation than with earlier. Financial innovation can also cause longlasting economic problems kotsemir and abroskin, 20 and inefficient financial innovation can harm the overall economy beck et al. This was the first time i had participated in a formal debate, as i suspect. This process of reducing costs of acquiring information, enforcing contracts, and executing transactions results in the emergence of financial contracts, intermediaries, and markets. Overall, our results stress the fundamental and still poorly understood role played by innovation in the financegrowth nexus. There is a striking paucity of empirical studies of determinants and consequences of financial innovation, mainly due the lack of data. Nexus between financial innovation and economic growth in. Financial innovation and endogenous growth sciencedirect.
Financial innovation is the act of creating new financial instruments as well as new financial technologies, institutions, and markets. This paper investigates the impact of financial development on economic growth using time series data in cameroon. Financial development is part of the private sector development strategy to stimulate economic growth and reduce poverty. Fact 6 demonstrates how economic growth from innovation is measured and illustrates the lost income from the slowdown. However, the empirical implications of these reforms have been divergent.
Stemming from the financegrowth nexus, literature suggests that financial innovation has a relationship to growth, which could be either. Trends in financial innovation and their welfare impact. According to merton 1992 and tufano 2003, financial innovation responds. Pdf financial innovation and economic growth in bangladesh. A general proposition states that the development of the financial sector is expected to have a positive impact on economic growth. The relationship between financial development, innovation and economic growth 2. Financial sector development can cause economic growth, because efficient financial sector mobilized economic resources, assist in capital accumula tion.
It discusses the results of an empirical analysis between both variables and economic growth. Financial innovations in the form of new financial instruments, services, institutions, technologies, and markets mobilise financial surpluses from ultimate savers and channelizes them into most productive investment avenues thereby raising the rate of capital accumulation, and hence, the rate of economic growth. Financial innovation and economic growth a theoretical. Nov 04, 2009 the proposition for the debate was financial innovation boosts economic growth. Financialsector spending on research and development is used as a proxy for aggregate financial innovation. Pdf financial innovation and economic growth in the sadc. However, recent global evidence has shown that deregulation of the banking industry can sometimes have the. Several core conditions enable innovation and encourage economic growth. The purpose of this paper is to shed light on the role ict development, especially mobile phone penetration, can play in promoting financial inclusion and economic growth. Research within the context of cameroon found a positive. Financial innovation and endogenous growth stelios michalopoulos, luc laeven, ross levine.
Financial development, financial openness, and economic growth this paper examines the importance of financial development and openness. White paper balancing financial stability, innovation, and. Pdf background this study provides evidence for the financial innovation in the financial system that resulted in the economic growth of bangladesh. Balancing financial stability, innovation, and economic. Specifically, we analyze the impact of mobile phone penetration on economic growth rates in africa. Technological innovation and economic growth mercatus center.
This study examines the effect of adopting cashless payment in five european union eu countries, namely, austria, belgium, france, germany, and portugal, for the period of 20002012. Bank competition, financial innovations and economic growth. Cashless payment and economic growth financial innovation. The question is whether financial development precedes or simply follows economic growth.
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