An Empirical Analysis of the Determinants of Financial Development: Evidence from Emerging Markets

International Journal of Economics and Management Studies

© 2024 by SSRG - IJEMS Journal

Volume 11 Issue 12

Year of Publication : 2024

Authors : Mustaf Abshir Ali

10.14445/23939125/IJEMS-V11I12P102

How to Cite?

Mustaf Abshir Ali, "An Empirical Analysis of the Determinants of Financial Development: Evidence from Emerging Markets," SSRG International Journal of Economics and Management Studies, vol. 11,  no. 12, pp. 7-17, 2024. Crossref, https://doi.org/10.14445/23939125/IJEMS-V11I12P102

Abstract:

The finance literature consistently indicates a long-term relationship between economic growth and financial development. Both theoretical frameworks and empirical studies confirm that financial development plays a positive role in promoting economic growth. Given the significant role of financial institutions in fostering economic growth, recent attention in finance-growth literature has shifted to exploring the determinants of financial development. A substantial body of research has been conducted at both country and cross-country levels, but less attention has been paid to emerging economies’ dynamic and growing context. This study investigates the determinants of financial development in emerging market economies from 2000 to 2022. The study employs panel regression, utilizing pooled OLS, Random Effects, and Fixed Effects models. The empirical results show that trade openness, gross capital formation, financial openness, and income per capita all significantly and positively affect financial development. Although political stability is positively correlated with financial development, it is statistically insignificant in the context of emerging economies. These findings provide important policy implications, underscoring the importance of promoting trade openness, capital investment, per capita income, and financial openness as critical factors in fostering financial sector growth in emerging markets.

Keywords:

Financial development, Trade openness, Gross capital formation, Income per capita, Political stability.

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