The impact of financial development on the manufacturing industry in resource-rich countries: Empirical evidence from Azerbaijan
DOI:
https://doi.org/10.15549/jeecar.v10i3.1289Keywords:
financial development, economic regulation, manufacturing industryAbstract
The study is devoted to assessing the causal relationship between financial development and economic growth in the manufacturing sector of Azerbaijan, a country rich in oil and gas resources. The study covers quarterly data from 2005-2021. The Johansen co-integration test and the Toda-Yamamota test are used to analyze temporal and causal characteristics between indicators. The results showed that there is no co-integration between financial development and growth in the long run. Along with this, no evidence was found indicating the presence of a causal relationship between variables in the short run. The results show that increased credit availability does not necessarily positively impact productivity and capital growth in the manufacturing sector. At the same time, the growth of loans contributes more to the growth of imports than to the growth of domestic production. The hypothesis about the negative impact of the "resource curse" on financial development is confirmed by financial market development in Azerbaijan, which makes it difficult to assess the securities market's impact on manufacturing sector growth. Research on the institutional aspects of financial regulation and finding ways to increase the relative attractiveness of the manufacturing sectors could provide more detailed recommendations to improve the effectiveness of financial instruments.
References
Aluko, O.A., Adeyeye, O.P. & Oladele, P.O. Finance–growth nexus in sub-Saharan Africa revisited: evidence based on a new composite index. Econ Change Restruct 53, 333–355 (2020). https://doi.org/10.1007/s10644-019-09253-9 DOI: https://doi.org/10.1007/s10644-019-09253-9
Asaleye, A. J., Adama, J. I., & Ogunjobi, J. O. (2018). Financial sector and manufacturing sector performance: Evidence from Nigeria. Investment Management and Financial Innovations, 15(3), 35–48. https://doi.org/10.21511/imfi.15(3).2018.03 DOI: https://doi.org/10.21511/imfi.15(3).2018.03
Bist, J.P. (2018) Financial development and economic growth: Evidence from a panel of 16 African and non-African low-income countries, Cogent Economics & Finance, 6:1, 1449780, https://DOI:10.1080/23322039.2018.1449780 DOI: https://doi.org/10.1080/23322039.2018.1449780
Calderón, C., Liu, L. (2003). The direction of causality between financial development and economic growth, Journal of Development Economics, Volume 72, Issue 1, 2003, Pages 321-334. https://doi.org/10.1016/S0304-3878(03)00079-8 DOI: https://doi.org/10.1016/S0304-3878(03)00079-8
Central Bank of Azerbaijan (CBAR). (2022). https://www.cbar.az/page-41/macroeconomic-indicators
Cheng, Chih-Yang & Chien, Mei-Se & Lee, Chien-Chiang, (2021). ICT diffusion, financial development, and economic growth: An international cross-country analysis, Economic Modelling, Elsevier, vol. 94(C), pages 662-671. DOI: https://doi.org/10.1016/j.econmod.2020.02.008
Caporale, G.M., Rault, C. Sova, A.D., Sova, R. (2015). Financial Development and Economic Growth: Evidence from 10 New European Union Members. ?nternational Journal of Finance and Economics, Volume 20, ?ssue 1, 48-60. https://doi.org/10.1002/ijfe.1498 DOI: https://doi.org/10.1002/ijfe.1498
Daway-Ducanes, S.L.S., Gochoco-Bautista, M.S. (2021). Aspects of financial development and manufacturing and services growth: Which matter? Finance and Economics, 26(2), 2560-2580. https://doi.org/10.1002/ijfe.1921 DOI: https://doi.org/10.1002/ijfe.1921
Dritsaki, Ch. (2017). Toda-Yamamoto Causality Test between Inflation and Nominal Interest Rates: Evidence from Three Countries of Europe. International Journal of Economics and Financial Issues, 7(6), 120-129.
Dickey, D.A., Fuller, W.A. (1979), Distributions of the estimators for autoregressive time series with a unit root. Journal of American Statistical Association, 74, 427-431. DOI: https://doi.org/10.1080/01621459.1979.10482531
Durusu-Ciftci, D., Ispir, M.S., Yetkiner, H. (2017). Financial development and economic growth: Some theory and more evidence, Journal of Policy Modeling, Volume 39, Issue 2, 290-306. https://doi.org/10.1016/j.jpolmod.2016.08.001 DOI: https://doi.org/10.1016/j.jpolmod.2016.08.001
Elijah, S., & Hamza, N. (2019). The relationship between financial sector development and economic growth in Nigeria: Co-integration with structural break approach. International Journal of Engineering and Advanced Technology, 8(5), 1081–1088. https://doi.org/10.35940/ijeat.E1153.0585C19 DOI: https://doi.org/10.35940/ijeat.E1153.0585C19
Fowowe, B. (2011). The finance-growth nexus in sub-Saharan Africa: Panel co-integration and causality tests. International Development, 231, 220–239. https://doi.org/10.1002/jid.1660 DOI: https://doi.org/10.1002/jid.1660
Hassan, M.K., Sanchez, B., Yu, J-S. (2011). Financial development and economic growth: New evidence from panel data. The Quarterly Review of Economics and Finance, Volume 51, Issue 1, Pages 88-104. https://doi.org/10.1016/j.qref.2010.09.001 DOI: https://doi.org/10.1016/j.qref.2010.09.001
Hicks, J. (1969) A Theory of Economic History. Clarendon Press, Oxford Khan, Mohsin S. and Senhadji, Abdelhak S., Financial Development and Economic Growth: An Overview (December 2000). IMF Working Paper No. 00/209. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=880870 DOI: https://doi.org/10.5089/9781451874747.001
Ho, S. Y., & Iyke, B. N. (2020). The determinants of economic growth in Ghana: New empirical evidence. Global Business Review, 21(3), 626–644. https://doi.org/10.1177/0972150918779282 DOI: https://doi.org/10.1177/0972150918779282
Ibrahim, M., Alagidede, P. (2018). Effect of financial development on economic growth in sub-Saharan Africa. Journal of Policy Modeling, Volume 40, Issue 6, 2018, Pages 1104-1125. https://doi.org/10.1016/j.jpolmod.2018.08.001 DOI: https://doi.org/10.1016/j.jpolmod.2018.08.001
Johansen, S. & Juselius, K. (1990). Maximum likelihood estimation and inference on co-integration with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52 (2): 169-210. DOI: https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x
Khan, Z., Hussain, M., Shahbaz, M., Yung, S., Jiao, Z. (2020). Natural resource abundance, technological innovation, and human capital nexus with financial development: A case study of China. Resources Policy, Volume 65, 101585. https://doi.org/10.1016/j.resourpol.2020.101585 DOI: https://doi.org/10.1016/j.resourpol.2020.101585
King, R.G. and Levine, R., (1993a). Finance, Entrepreneurship, and Growth: Theory and Evidence. Journal of Monetary Economics, 32(3), 513-542. https://www.researchgate.net/publication/4907640_Finance_entrepreneurship_and_growth_Theory_and_evidence DOI: https://doi.org/10.1016/0304-3932(93)90028-E
King, R.G. and Levine, R., (1993b). Finance and Growth: Schumpeter Might Be Right, The Quarterly Journal of Economics, Volume 108, Issue 3, August 1993, Pages 717–737. https://doi.org/10.2307/2118406 DOI: https://doi.org/10.2307/2118406
Korkmaz, S. (2015). Impact of Bank Credits on Economic Growth and Inflation. Journal of Applied Finance & Banking, vol. 5, no. 1, 57-69. http://www.scienpress.com/Upload/JAFB/Vol%205_1_4.pdf
Levine, R. (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), 688–726. http://www.jstor.org/stable/2729790
Liu, X., Mattoo, A., Wang, Z., Wei, S. (2020). Services development and comparative advantage in manufacturing, Journal of Development Economics, Volume 144, 102438 https://doi.org/10.1016/j.jdeveco.2019.102438 DOI: https://doi.org/10.1016/j.jdeveco.2019.102438
Loayza, N.V. and Ranciere, R. (2006) Financial Development, Financial Fragility, and Growth. Journal of Money, Credit and Banking, 38, 1051-1076. http://dx.doi.org/10.1353/mcb.2006.0060 DOI: https://doi.org/10.1353/mcb.2006.0060
Lucas, R.E. (1988). On the mechanics of economic development. Journal of Monetary Economics 22, 3-42. https://www.sfu.ca/~kkasa/lucas88.pdf DOI: https://doi.org/10.1016/0304-3932(88)90168-7
Madsen, J.B., Islam, Md.R., Doucouliagos, H. (2018). Inequality, financial development and economic growth in the OECD, 1870–2011. European Economic Review, Volume 101, 605-624. https://doi.org/10.1016/j.euroecorev.2017.11.004 DOI: https://doi.org/10.1016/j.euroecorev.2017.11.004
Mammadli, Mubariz. 2022. "Environmentally Responsible Business Approaches in Azerbaijan" Sustainability 14, no. 10: 6227. https://doi.org/10.3390/su14106227 DOI: https://doi.org/10.3390/su14106227
Mammadov, I., Ahmadov F. (2021) Financial Development and Economic Growth: Evidence From Azerbaijan. WSEAS Transactions on Business and Economics, Volume 18, 2021, pp. 237-252 https://DOI:10.37394/23207.2021.18.25 DOI: https://doi.org/10.37394/23207.2021.18.25
Mukhtarov, S., Humbatova, S., and Seyfullayev, ?. (2019). The impact of bank credits on non-oil GDP: evidence from Azerbaijan. Banks and Bank Systems, 14(2), 120-127. http://dx.doi.org/10.21511/bbs.14(2).2019.10 DOI: https://doi.org/10.21511/bbs.14(2).2019.10
Okunlola, O. A., Masade, E. O., Lukman, A. F., & Abiodun, S. A. (2020). Investigating causal relationship between financial development indicators and economic growth: Toda and Yamamoto approach. Iranian Economic Review, 24(1), 225–246. https://doi.10.22059/ier.2020.74480
Rioja, F., Valev, N. (2004a). Finance and the sources of growth at various stages of economic development. Economic Inquiry, 42, 127–140. https://onlinelibrary.wiley.com/doi/epdf/10.1093/ei/cbh049 DOI: https://doi.org/10.1093/ei/cbh049
Rioja, F., Valev, N. (2004b). "Does one size fit all? A reexamination of the finance and growth relationship," Journal of Development Economics 74(2), 429-447. DOI: https://doi.org/10.1016/j.jdeveco.2003.06.006
Robinson,J. (1952) "The Generalization of the General Theory," in The Rate of Interest, and other essays. London: Macmillan, 1952, pp. 67- 142. http://digamo.free.fr/harcorobi.pdf
Romer, P.M. (1986). Increasing returns and long run growth. Journal of Political Economy 94 (5), 1002–1037. https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.589.3348&rep=rep1&type=pdf DOI: https://doi.org/10.1086/261420
Samargandi, N., Fidrmuc, J., Ghosh, S. (2014). Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries, World Development, Volume 68, 2015, 66-81. https://doi.org/10.1016/j.worlddev.2014.11.010 DOI: https://doi.org/10.1016/j.worlddev.2014.11.010
Seyfullayev, I. (2020). Protectionism and non-resource economic growth: Evidence from Azerbaijan. Problems and Perspectives in Management, 18(4), 121- 129. https://doi.org/10.21511/ppm.18(4).2020.11 DOI: https://doi.org/10.21511/ppm.18(4).2020.11
Seyfullayev, ?. (2022). Trade openness and economic growth: Evidence from Azerbaijan. Problems and Perspectives in Management, 20(1), 564-572. https://doi:10.21511/ppm.20(1).2022.45 DOI: https://doi.org/10.21511/ppm.20(1).2022.45
Schumpeter, J. (1934). The theory of economic development – An inquiry into profits, capital, credit, interest, and the business cycle. Regional Studies. New Brunswick, NJ: Transaction Publishers.
Tang, C., Irfan, M., Razzaq, A., Dagar, V. (2022) Natural resources and financial development: Role of business regulations in testing the resource-curse hypothesis in ASEAN countries, Resources Policy, Volume 76, 102612 https://doi.org/10.1016/j.resourpol.2022.102612 DOI: https://doi.org/10.1016/j.resourpol.2022.102612
The State Statistical Committee of the Republic of Azerbaijan (SSCA). (2022), https://www.stat.gov.az/source/system_nat_accounts/
Toda, H.Y., Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66, 225-250. DOI: https://doi.org/10.1016/0304-4076(94)01616-8
Tripathy, N. (2019). Does the measure of financial development matter for economic growth in India? Quantitive Finance and Economics, 3(3): 508–525. https://doi:10.3934/QFE.2019.3.508 DOI: https://doi.org/10.3934/QFE.2019.3.508
Valickova, P., Havranek, T., Horvath, R. (2015). FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH: A META-ANALYSIS. Journal of Economic Surveys, Volume 29, ?ssue 3, 506-526. https://doi.org/10.1111/joes.12068 DOI: https://doi.org/10.1111/joes.12068
Ustarz, Y. & Fanta, A.B. (2021) Financial development and economic growth in sub-Saharan Africa: A sectoral perspective, Cogent Economics & Finance, 9:1, 1934976. https://www.tandfonline.com/doi/full/10.1080/23322039.2021.1934976 DOI: https://doi.org/10.1080/23322039.2021.1934976
Xu, Z., Pal, S. (2022). The effects of financial liberalization on productivity: Evidence from India's manufacturing sector Journal of Management Science and Engineering, Volume 7, Issue 4, 578-588, https://doi.org/10.1016/j.jmse.2022.04.001 DOI: https://doi.org/10.1016/j.jmse.2022.04.001
Downloads
Published
How to Cite
Issue
Section
License
The JEECAR journal allows the author(s) to hold the copyright and publishing rights of their own manuscript without restrictions.
This journal applies the Creative Attribution Common License to works we publish, and allows reuse and remixing of its content, in accordance with a CC-BY 4.0 license.
Authors are free to: Share — copy and redistribute the material in any medium or format and Adapt — remix, transform, and build upon the material for any purpose, even commercially.
Under the following terms: Attribution — You must give appropriate credit, provide a link to the license, and indicate if changes were made. You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use.
No additional restrictions — The author may not apply legal terms or technological measures that legally restrict others from doing anything the license permits.
The JEECAR Journal is committed to the editorial principles of all aspects of publication ethics and publication malpractice as assigned by the Committee on Public Ethics.
