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Finance and Growth: the Long-run and Short-run Puzzle Effect By Binam Raj Ghimire

Finance and Growth: the Long-run and Short-run Puzzle Effect By Binam Raj Ghimire. Motivation. Economic Growth: Importance Evolution of economy Catching up with Growth. Source: http://borgenproject.org/Pictures.html. In Literature.

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Finance and Growth: the Long-run and Short-run Puzzle Effect By Binam Raj Ghimire

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  1. Finance and Growth: the Long-run and Short-run Puzzle Effect By Binam Raj Ghimire

  2. Motivation Economic Growth: Importance Evolution of economy Catching up with Growth Source: http://borgenproject.org/Pictures.html

  3. In Literature “developments in finance enabled the industrial revolution” - Walter Bagehot (1873) “where enterprise leads finance follows” -Joan Robinson (1952) “although conclusions must be stated hesitantly and with ample qualifications, ………….. suggests a positive first-order relationship between financial development and economic growth.” - Ross Levine (1997, 2005) Walter Bagehot Ross Levine Source: picture top: http://www.spartacus.schoolnet.co.uk, picture bottom: Brown University, Providence

  4. No Silver Bullets but …5common ingredients Openness to Trade Macroeconomic stability High rates of saving and investment Allowed market allocation of resources Committed, honest & capable governments A recent report:13 Countries, 7% pa growth, 25 Yrs. Source: Commission on Growth and Development

  5. Variables for Financial Development (Banks) Bank Development - Private Credit / GDP Beck, Kunt and Levine (2007) – Bangladesh 23 % Thailand 65% Headcount: 1983 – 26% 2000 – 36% (Could have been 15% – population living on less than one dollar a day) HSBC Bank Mexico, Source: www.newcityskyline.com

  6. Variables for Financial Development (Stock Market) Stock Market Development - Capitalisation - Traded value - Turnover Control Variables NASDAQ at Times Square, Source: www.nasdaq.com

  7. Data & Methodology Panel Data, Pooled, Fixed and Random Effect, OLS 25 Yrs. 208 Countries Where Y = Real per capita GDP C = Private Credit M = Stock Market X = Control Variables

  8. Short run and long run dynamics in economics Real GDP per capita growth rate Short-run Economy is unstable World, East Asia & Pacific 1997 Long-run Economy is in equilibrium

  9. Results

  10. Conclusion Rethinking – Is there a link between financial development and economic growth? Source: Logo – bbc.co.uk

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