Financial development and economic growth: An application of ARDL model on developed and developing countries

Abstract

Financial development and economic growth are vital for both developed and developing nations because it determines a country’s economic growth rate and the complexity of its financial system. A sample of developed and developing economies from 2005-2019 was used in this study to observe whether there is an association between financial development and economic growth. The purpose of this study is to compare the association between financial development and economic growth in developed and developing countries. An ARDL model was used to analyze secondary data from the top 15 Developed countries (United States America, Japan, Germany, United Kingdom, France, Italy, Canada, Korea, Rep., Australia, Spain, Netherlands, Switzerland, Poland, Belgium, Austria) and top 15 Developing countries (China, India, Brazil, Russian Federation, Mexico, Indonesia, Thailand, Nigeria, Argentina, Philippines, Malaysia, South Africa, Colombia, Egypt, Arab Rep., Pakistan) based on GDP 2019 (Current US$). Findings of the study shows some interesting insights for long and short run relationship among study indicators based on ARDL model. This research might help developed countries to enhance their financial structure and economic growth rate over time, while for developing countries suggests new policies initiatives.