Phát triển tài chính, cấu trúc tài chính và tăng trưởng kinh tế

Phát triển tài chính, cấu trúc tài chính và tăng trưởng kinh tế.Phát triển tài chính, cấu trúc tài chính và tăng trưởng kinh tế.Phát triển tài chính, cấu trúc tài chính và tăng trưởng kinh tế.Phát triển tài chính, cấu trúc tài chính và tăng trưởng kinh tế.Phát triển tài chính, cấu trúc tài chính và tăng trưởng kinh tế.Phát triển tài chính, cấu trúc tài chính và tăng trưởng kinh tế.Phát triển tài chính, cấu trúc tài chính và tăng trưởng kinh tế.Phát triển tài chính, cấu trúc tài chính và tăng trưởng kinh tế.Phát triển tài chính, cấu trúc tài chính và tăng trưởng kinh tế.Phát triển tài chính, cấu trúc tài chính và tăng trưởng kinh tế.Phát triển tài chính, cấu trúc tài chính và tăng trưởng kinh tế.

1 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY HUYNH THI THUY VY FINANCIAL DEVELOPMENT, FINANCIAL STRUCTURE AND ECONOMIC GROWTH SUMMARY OF PHD DISSERTATION Ho Chi Minh City, 2022 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY HUYNH THI THUY VY FINANCIAL DEVELOPMENT, FINANCIAL STRUCTURE AND ECONOMIC GROWTH Major: Finance and Banking Code: 9.34.02.01 SUMMARY OF PHD DISSERTATION Academic Supervisor: Assoc Prof Nguyen Khac Quoc Bao Ho Chi Minh City, 2022 The dissertation is carried out at: University of Economics Ho Chi Minh City Academic supervisors: Assoc Prof Nguyen Khac Quoc Bao Reviewer 1: Reviewer 2: Reviewer 3: The dissertation is presented to defended at Ph.D Evaluation Committee of University Level at………… on ……… The dissertation can be referred at the library: CHAPTER 1: INTRODUCTION 1.1 Research motivation The relationship between financial development and economic growth has always been one of the subjects of interest to researchers in academic and policy discussions over many centuries Although the general academic literature on the relationship between financial development and economic growth has been around since the early 20th century, surprisingly, there has not been any consensus on any conclusion on which argument has been made so far While some studies show that financial development positively impacts on economic growth (Bist, 2018; Guru & Yadav, 2019) Other studies have found evidence of negative or negligible effects of financial development on economic growth (Nili & Rastad, 2007; Naceur & Ghazouani, 2007; Kar et al., 2011; Naraya & Naraya, 2013) After the 2008 global financial crisis, a new line of research highlights the complexity of the impact of financial development on economic growth, when it comes to nonlinearities with threshold effects or inverted U-shaped (Rousseau & Wachtel, 2011, Beck, 2014; Law & Singh, 2014; Rioja &Valev, 2014; Arcand et al., 2015; Samargandi et al., 2015; Ibrahim & Alagidede, 2018; Panizza, 2018; Swamy & Dharani, 2020) The link between financial development and economic growth has become a complex puzzle in individual country studies and requires a comprehensive assessment of the regional and global research world Although sustainable growth has always been seen as a major goal and challenge for many countries, crises have made matters worse As a result, countries face many significant challenges in integrating into the ordinary economy of the world, especially when the speed of globalization is growing more and more dynamic Therefore, the issue of whether financial development is still essential to economic growth, and what is the actual impact of financial development on economic growth Is it a positive effect on economic growth, conversely, is economic growth adversely affected by “too much finance”? Apart from financial development, another topic of interests for researchers in analyzing the relationship between finance - growth is the financial structure As in previous studies, if financial structure appears when analyzing economic growth, it mainly considers the financial system severally, either bankbased or market-based, which will promote economic growth or expand further, rather than the structural form of the financial system, the general quality of the financial system, financial services and legal system that affects economic growth However, it has recently emerged that a new structuralism view has been proposed to explain the relationship between financial structure and economic growth (Lin & Monga, 2010; Cull & Xu, 2013; Demir & Hall, 2017) At that time, a question was raised on what the optimal financial structure of each country is Furthermore, whether each country is in the process of development, the financial structure is bankbased or market-based during the whole process, or each stage of development, there will be a change in the transformation of the financial structure in the financial system If this happens, it is seen as a challenge for policymakers to make policies to manage the financial system in their countries Therefore, this is considered as a motivation for the 3, more objectively and comprehensively, to analyze the impact of financial development on economic growth, the relationship between financial structure and economic growth Thereby providing the crucial implications in policy making, which relates to the financial system as well as the sustainable economic growth goal of each country, in the period that the world financial system reshapes as it is today 1.2 Research objectives and questions The overall research objective of the dissertation is to study the impact of financial development on economic growth, the relationship between financial structure and economic growth; thereby the dissertation will summarize and provide the important policy implications in promoting sustainable economic growth based on financial development and financial structure in the financial system of countries In particular, the dissertation clarifies two specific objectives as follows: First, examine the impact of financial development on economic growth, including the overall impact and the individual impact of each aspect of financial development, thereby determining which aspect impacts on economic growth Second, test the relationship between financial structure and economic growth, find the optimal financial structure when the level of financial development affects economic growth, and test the causal relationship at different time scales with different frequencies between financial markets, financial intermediaries and economic growth Thereby analyzing the change of financial structure in each development stage of the economy with the new structuralism view To achieve the research objective, specific research questions include: How does financial development affect economic growth? Which shape is the impact of financial development on economic growth (U-shaped or inverted Ushaped)? Does the impact of financial structure on economic growth depend on the level of financial development? Does the new structuralism view exist? and what is the optimal financial structure? 1.3 Research object and scope Research object: To achieve the first research objective, the research object is the effect of financial development on economic growth In order to reach the second research objective, the research objective is the relationship between financial structure and economic growth Research scope: The dissertation builds a new set of financial development indexes based on the recommendations of the IMF and WB, which excludes economies that not have a stock market and not provide sufficient information Due to the drawbacks of the least developed countries and the reliable research findings, the dissertation also excludes these countries from research Furthermore, based on the availability of FSD and GFDD, the final sample comprised a total of 33 countries for the period 2004-2017 1.4 Research Methodology Firstly, the dissertation constructs the financial development index based on the recommendations of IMF and WB with a combination of four aspects: depth, access, efficiency and stability The construction methodology of the composite index is based on a combination of methods from OECD (2008), Camara & Tuesta (2014) and Svirydzenka (2016) methods After developing a new set of financial development indicators, the dissertation continues to analyze the combined and separated impacts of each aspect of financial development on economic growth by estimating MG-ARDL, PMG- ARDL and quadratic polynomials with SML test Secondly, the dissertation builds and develops an expanded neoclassical growth model as proposed by Liu and Zhang (2020) with Hicks Neutral Technical Progress to find the optimal financial structure priority in relation to economic growth The dissertation analyzes the impact of financial structure on economic growth under the affection of the level of financial development It analyzes the causal relationship that considers the cross-dependence at different time scales by decomposing the original data series by Wavelet transform Thus, there is a basis to find out whether the new structuralism view exists or not by applying the PMG-NARDL model 1.5 Research contributions 1.5.1 Theoretical contribution Firstly, the dissertation constructs a new set of indicators for measuring financial development with the following aspects: depth, access, efficiency and stability Until now, this set is considered the most complete and comprehensive of all aspects of financial development This new set of indicators overcomes the gaps in the traditional indicators of financial development as well as the latest set of indicators released by the IMF Secondly, the dissertation finds that the reason why financial development has a positive, negative, or negligible impact on economic growth due to various aspects of financial development Overall, financial development has an inverted U-shaped impact on economic growth (ii) For each aspect, the size of the financial institution and financial market, the accessibility of the financial institution and the efficiency of the financial market affect economic growth in the form of U-shaped Moreover, the more stable the financial system, the more economic growth will be promoted (iii) The dissertation finds that access to the financial market and the efficiency of financial institutions have no significant effect on long-term economic growth Thirdly, the dissertation has constructed and developed an expanded neoclassical growth model with the impact of financial structure on economic growth when the level of financial development affects, based on many measurement measures, measure the financial structure and different levels of financial development Besides, for the first time, the wavelet transform is used to decompose the data series into different time scales with different frequencies In addition, the dissertation adds to the theoretical basis of the relationship between financial structure and economic growth when it finds the existence of a new structuralism view in the group of developing countries & emerging 1.5.2 Practical contribution Firstly, policymakers can make policy implications to optimize the development of financial size as well as the efficiency of financial intermediaries to improve the country's financial system in the period in which the world financial system is reshaping Secondly, the results of the dissertation reinforce the influence of the level of financial development on the relationship between financial structure and economic growth Depending on the different time scales, the policies to develop the financial system in each country need to be different to promote economic growth Thirdly, from the results of the new structuralism view, policymakers can consider the change in financial management policy in their country That is, instead of passively classifying the financial system as bank-based or market-based, it can be more flexible and should be based on the structure of the real economy to determine its specific shape for the development of each country 1.6 Structure of the dissertation Chapter 1: Introduction Chapter 2: Theoretical framework and literature review Chapter 3: Data and methodology Chapter 4: Empirical results and discussion Chapter 5: Conclusions and policy implications CHAPTER THEORETICAL FRAMEWORK AND LITERATURE REVIEW 2.1 Economic Growth Economic growth is defined as an increase in the output of a country or an increase in per capita income Output is generally measured on the basis of Gross National Product (GNP) or Gross Domestic Product (GDP) The most basic models of economic growth related to output and economic growth are functions that are based on saving, investment, population growth, size of the labor force, capital composition, and words that are integrated in total output These models initially focus on investment, labor, productivity, and output, and examine changes in these variables with the aim of finding a change in output or the rate of growth in itself economy This model considers five equations: (1) the gross production function, (2) the determination of saving levels, (3) the nature of saving, (4) the relationship between investment and the change in capital, (5) labor force growth The gross production function is arguably at the heart of all models of economic growth However, depending on the relationship between the basic factors of production (capital, labor) and the total output under consideration, this function is shaped in different form of formula Such a relationship depends, among other factors., on economic activities and the level of technology development 2.2 Financial Development According to Levine (2005), financial development occurs when the financial system significantly reduces the impact of information, transaction and enforcement costs arising from market frictions Adnan (2011) considers financial development as a set of policies, factors and institutions that lead to effective and efficient financial intermediation Financial development is when information costs and transaction costs are significantly reduced through resource allocation and financial intermediation efficiency It is achieved in five ways by Levine (2005), Demirgỹỗ-Kunt and Levine (2008) Further, according to the 2011 financial development report published by the WEF, financial development is defined as the factors, policies and institutions that lead to financial intermediation and efficient financial markets, as well as deep and wide access to financial services and capital According to the World Bank (2012), financial development refers to financial instruments, financial markets and financial intermediaries that reduce the impact of imperfect information, and reduce transaction and execution costs Therefore, it can be understood that financial development is the development of the financial system by increasing the efficiency of financial functions through the process of improving the quality and efficiency of financial intermediaries and financial markets 2.3 Financial Structure The financial structure of a country is defined as the institutions, financial technology, and rules which define how financial institutions operate at a point in time According to the theory derived from Gerschenkron (1962) and Goldsmith (1969), the financial system is divided into two main groups based on the type of institutions that constitute it, namely the bank-based and market-based In a bank-based financial system, financial intermediaries play an important role in the market by mobilizing savings, allocating capital, facilitating hedging, and diversifying risks (Allen & Gale, 2000; Levine, 2002) In contrast, the market-based financial system is characterized by a stock market and an advanced banking system, in which banks still play a dominant role in capital allocation However, banks are still less important than the stock market because companies mainly rely on external funding from the stock market (Stulz, 2001) 2.4 Theories of financial development and economic growth 2.4.1 Original Theories The impact of financial development on economic growth was first introduced by Bagehot (1873), followed by the theory of Schumpeter (1911), Schumpeter and Opie (1934), and Patrick (1966) with supplyleading model These models all emphasize the positive impact of financial development on economic growth 2.4.2 Neoclassical Growth Theory Neoclassical growth theory describes a perfectly competitive economy According to this theory, capital flows move from places of surplus to places of deficit thereby promoting economic growth Financial markets collect money and support innovative businesses, bringing about technological change and drive economic growth Solow (1956) developed a new model of economic growth based on Harrod (1939) and Domar (1946) models, known as the neoclassical growth model This growth model demonstrates that the economy, in the long term, tends to reach an equilibrium with steady and continuous growth This model is also known as exogenous growth model, the growth of an economy will converge to a certain speed in the steady state Because it is not related to internal factors, only external factors can change the rate of economic growth in a sustainable state 2.4.3 Mckinnon-Shaw Model Mckinnon (1973) and Shaw (1973) argue that the Keynesian and Neoclassical models are inappropriate due to limited assumptions Mckinnon and Shaw (1973) demonstrate that when the financial system is constrained, investment will decrease and government intervention is often not economically productive According to this theory, the financial system should evolve first to stimulate economic growth, not as a result of growth 2.4.4 Endogenous Growth Theory The origins of endogenous growth theory are partly due to the predictive failure of the neoclassical growth model, developed primarily by Romer (1986) The endogenous growth theory mainly emphasizes that capital grows because of higher savings rates, which promotes growth and that long-term growth is an endogenous variable However, Lucas (1988) argues that the importance of financial markets in economic growth is overemphasized in academic discussions Pagano (1993) then further developed the endogenous growth model and focused on the financial system’s importance in economic growth Pagano established a simple endogenous growth model from Rebelo's AK model (1991) Since the 1990s, other researchers have increasingly focused on whether financial development can account for GDP per capita growth (such as Bencivenga & Smith, 1991; Greenwood & Jovanovic, 1990) and found a positive impact of financial development on economic growth 2.5 Theories of financial structure and economic growth 2.5.1 Bank-Based Financial System The bank-based financial system theory emphasizes the positive impact of banks on the economy through three main channels Firstly, banks acquire information about managers and businesses in order to increase the efficiency of corporate governance and improve capital allocation Secondly, banks manage crosssectoral risks, thus improving investment efficiency and promoting economic growth Finally, banks provide mobilized capital to benefit from economies of scale (Levine, 2002) If financial intermediaries play a leading role in driving an economy, then for that economy, the financial system is often referred to as a bank-based financial system in general (Demirguc-Kunt & Levine, 2001) Many researchers still argue that a bank-based financial system is superior to a market-based system (Hoshi et al., 1990; Demirguc-Kunt & Levine, 2001) However, the bank-based financial system still has its drawbacks This system is prone to inefficient capital allocation and high debt ratio problems (Demirguc-Kunt & Levine, 2001) While government bailouts during the financial crisis can prevent the crisis from worsening, they can also have negative effects, thus making the system more fragile and more vulnerable to crises (Greenspan, 1999) 2.5.2 Market-Based Financial System The market-based financial system theory holds that if financial markets share with banks in promoting economic growth through savings mobilization, resource allocation, corporate control, and risk management reductions, such an economy is called a market-based financial system (Demirguc-Kunt & Levine, 2001) The market-based financial system theory emphasizes the positive role of financial markets in stimulating growth through three main channels Firstly, financial markets increase the impetus for corporate surveillance, as large and liquid market trading benefits from this information Secondly, financial markets improve corporate governance by facilitating takeovers and linking management to corporate performance Finally, financial markets are easily managing risk (Levine, 2002) However, a market-based financial system is not without its drawbacks Scholars who favor a bank-based financial system argue that well-developed markets reveal information more readily than public markets (Stiglitz, 1985) Thus, the larger development market may reduce incentives to identify innovative projects that drive growth Moreover, either market-based or bank-based financial system theories that impact economic growth, there are also theories of financial services and legal and financial theory 2.5.3 The New Structuralism View The previous view of structuralism (Myrdal, 1957; Hirshman, 1958; Gerschenkron, 1962; Furtado, 1977; Taylor, 1983; Justman & Teubal, 1991) held that: (i) Old structural economics has divided the world into two main categories based on a binary classification: developing countries and developed countries (ii) Development policies are proposed to encourage developing countries to imitate the economic structure of developed countries (iii) To implement the proposed development policies, the previous structural economy advocated government intervention in the economy Meanwhile, according to the new economic structure approach of Lin and Monga (2010), the structure of preferential factors at each stage of economic development determines the corresponding industry structure of the economy based on the comparative advantage approach, thereby determining the corresponding financial system structure This means that the real sector is regarded as the primary determinant of the structure of the financial system Financial structure is therefore viewed as a dynamic process, determined endogenously by the demand for different types of specific financial services associated with each stage of economic development Then, at the early stage of economic development, the bank-based financial system has many advantages and is more efficient than the market-based financial system In higher stage of development, capital is relatively abundant compared to labor power, the structure of the financial system at these stages is governed by the financial market, which is considered a source of capital to enhance capital needs and diversify risks at a high level 2.6 Literature Review 2.6.1 The linear effect of financial development on economic growth Most empirical studies provide evidence of a positive relationship between financial development and economic growth One is the empirical study by Goldsmith (1969), who argued that financial intermediation contributes to economic growth and had a positive correlation between the size of the financial system and its supply and quality of financial services Then, King and Levine (1993), based on Goldsmith (1969), found that the financial system can promote economic growth Lately, Bist (2018), Guru and Yadav (2019) reported a linear positive impact of financial development on economic growth Furthermore, several other studies highlight the negative or negligible impact of financial markets on economic growth mainly in developing countries (such as Snigh, 1997; Nili & Rastad, 2007); Naceur & Ghazouani, 2007; Kar et al., 2011; Naraya & Naraya, 2013) Thus, empirical studies show different linear effects between financial development and economic growth in three main directions, concluding that there is a positive linear effect, a negative linear effect, and no relationship between financial development and economic growth 2.6.2 Nonlinear effects of financial development on economic growth Nonlinear hypotheses have been largely ignored in pre-crisis growth-finance research (Carré & L'œillet, 2018) Studies prior to the crisis primarily described the relationship between these two variables as positive and linear, and only a few studies have examined the finance-growth relationship as non-monotonic (Deidda & Fattouh, 2002; Rioja & Valev, 2004a, b; Aghion et al., 2005) After the 2008 global financial crisis, a new line of growth-finance research was promoted to investigate the overfinance hypothesis (Panizza, 2014) This line emphasizes the complexity of the finance-growth relationship as a “Gordian Knot” — that is, the relationship is often variable, nonlinear, or insignificant (Carré & L'œillet, 2018) For example, new lines of research demonstrate the vanishing effect of finance on growth (Rousseau & Wachtel, 2011) and the hypothesis of too much finance with a certain threshold ratio (Cecchetti & Kharroubi, 2012; Beck, 2014; Law & Singh, 2014; Rioja &Valev, 2014; Arcand et al., 2015; Ibrahim & Alagidede, 2018; Panizza, 2018) Several other studies also agree with the hypothesis of too much finance in an inverted U-shaped (Arcand et al., 2015; Ductor & Grechyna, 2015; Samargandi et al., 2015; Swamy & Dharani, 2020) Then, the hypothesis of more finance and more growth is superseded by the hypothesis of which too much finance will harm economic growth Some domestic studies also analyze the impact of financial development on economic growth, such as Hoang Thi Phuong Anh and Dinh Tan Danh (2015), Phan Thi Bich Nguyet and Pham Duong Phuong Thao (2016), Chu Khanh Lan and Nguyen Tran Manh Trung (2019), Pham Duong Phuong Thao (2019) However, these studies all use separate traditional indicators to measure financial development, so they not capture the multi-dimensionality of financial development Therefore, from the empirical evidence presented, financial development’s impact on economic growth focuses on three main lines of opinion The first view supports the argument that more finance, more growth The second point supports the argument that too much finance is harmful to the economy Lastly, financial development has no significant impact on economic growth Thus, the dissertation constructs three research hypotheses corresponding to the following three points of view: Hypothesis H1: Financial development has a positive effect on economic growth, that is, more finance, more growth Hypothesis H2: The effect of financial development on economic growth is nonlinear and follows an inverted U-shaped, meaning that too much finance is harmful to the economy 2.6.3 The relationship between financial structure and economic growth 2.6.3.1 Empirical evidence on the impact of financial structure on economic growth Based on theories of financial structure, there is increasing empirical evidence showing the influence of financial structure on economic activities One of the pioneering studies on the relationship between financial structure and economic growth is by Beck et al (2000) Transnational studies were subsequently 14 CHAPTER EMPIRICAL RESULTS AND DISCUSSION 4.1 Results of testing the impact of financial development on economic growth 4.1.1 Results of building a new set of financial development indicators The results of Panel 4.1 show that depending on the sub-indices, the aggregate information on financial depth, access, efficiency and stability represents from 64.8% to 87.1% of variance in the sub-index data Panel 4.1: Results of percent of variance in the financial development index explained by PCA FI FM FI FM FD 0,514 0,441 0,703 0,291 0,207 0,278 0,297 0,061 0,183 0,183 0,096 0,098 FID FIA FIE FIS FMD FMA FME FMS PC1 0,462 0,656 0,55 0,271 0,376 0,648 - - PC2 0,210 0,344 0,256 0,213 0,274 PC3 0,151 0,154 0,178 0,221 PC4 0,098 0,029 0,131 0,108 PC5 0,079 0,011 0,092 0,021 PC6 0,077 PC7 0,038 Source: Author's calculations Descriptive statistics for the group of financial development variables built from the PCA analysis for the period 2004 - 2007 in Panel 4.2 show that all variables have been normalized in and Panel 4.2: Descriptive statistics of financial development variables Số quan Trung Độ lệch Giá trị Giá trị sát bình chuẩn nhỏ lớn FD 462 0,526 0,193 FI 462 0,530 0,197 FM 462 0,457 0,171 FID 462 0,408 0,237 FIA 462 0,294 0,210 FIE 462 0,638 0,142 FIS 462 0,394 0,163 FMD 462 0,281 0,205 FMA 462 0,558 0,241 FME 462 0,250 0,213 FMS 462 0,671 0,216 Biến Source: Author's calculations 4.1.2 Cross-dependence test results The results of the cross-dependence test demonstrated in Panel 4.3 indicate that all variables reject the H0 hypothesis with a significance level of 1% (except for the POP variable) The CD test finds evidence of cross-dependence, so the table data cointegration test must to apply the Bootstrap distribution 15 Panel 4.3: Kết kiểm định phụ thuộc chéo CD P_value statistics Model’s CD P_value statistics FD 26,99*** 0,000 41,540*** 0,000 FI 4,131*** 0,000 48,297*** 0,000 FM 36,318*** 0,000 34,626*** 0,000 FID 16,069*** 0,000 39,581*** 0,000 FIA 32,13*** 0,000 44,125*** 0,000 FIE 12,879*** 0,000 39,324*** 0,000 FIS 12,755*** 0,000 42,860*** 0,000 FMD 16,1*** 0,000 42,305*** 0,000 FMA 8,541*** 0,000 47,370*** 0,000 FME 22,727*** 0,000 46,125*** 0,000 FMS 60,167*** 0,000 32,692*** 0,000 GROWTH 47,643*** 0,000 GROSS 4,57*** 0,000 TRADE 11,256*** 0,000 POP -0,379 0,705 Note: The model's CD statistics are based on the fixed-effects model In parentheses are P-Value, ***, **, * significant at 1%, 5%, and 10 levels, respectively Source: Author's calculations 4.1.3 Results of panel unit root test The unit root test results presented in Panel 4.4 show that all variables are stationary at the first difference Panel 4.4: Results of panel unit root test FD FI FM FID FIA FIE FIS FMD Level -1,657 -1,740 -2,091*** -1,075 -1,554 -3,485*** -2,870*** -1,385 CIPS Difference -4,142*** -3,641*** -4,192*** -1,788 -2,591*** -4,407*** -3,881*** -3,718*** Level -1,825** -1,949** -2,120*** -0,703 -1,275 -2,621*** -2,442*** -1,575 FMA -2,224** -3,545*** -2,22*** -3,960*** FME -2,267*** -3,638*** -2,211*** -4,321*** FMS -2,005* -3,207*** -1,749** -3,141*** -2,374*** -4,351*** -2,867*** -4,490*** -1,333 -2,603*** -1,601 -2,805*** Biến GROWTH GROSS IPS Difference -3,637*** -4,321*** -3,710*** -2,714*** -2,772*** -4,553*** -3,691*** -3,308*** TRADE -1,293 -2,689*** -1,79* -3,728*** POP -1,744 -2,467*** -1,929 -2,542** Note: ***, **, * significant at 1%, 5%, and 10 levels, respectively Source: Author's calculations 16 4.1.4 Cointegration test results Panel 4.5 shows the results of Westerlund's cointegration test with the Bootstrap distribution The results show that most of the tests have a cointegration relationship between financial development and economic growth Panel 4.5: Westerlund's cointegration test results Model FD Gt Ga Pt Pa -4,464** -3,216* -15,572** -2,564 (0,048) (0,058) (0,018) (0,143) FI -3,928* -2,677 -11,608** -2,292 (0,050) (0,220) (0,050) (0,245) FM -4,787** -3,239* -16,288** -2,828 (0,050) (0,070) (0,023) (0,105) FID -3,747* -3,143* -16,019** -3,080* (0,060) (0,085) (0,020) (0,055) FIA -3,506** -2,878 -11,608** -2,572 (0,048) (0,155) (0,033) (0,143) FIE -4,661** -3,198* -16,086** -2,781* (0,048) (0,068) (0,020) (0,113) FIS -3,981* -2,952* -16,195** -3,177* (0,077) (0,100) (0,020) (0,055) FMD -3,535* -3,255* -15,348** -3,451** (0,063) (0,073) (0,025) (0,035) FMA -4,237* -3,357** -13,984** -3,202** (0,085) (0,043) (0,018) (0,045) FME -4,018* -3,225** -16,444** -3,121* (0,058) (0,048) (0,015) (0,037) FMS -4,586** -3,456** -17,719** -2,960* (0,043) (0,035) (0,018) (0,080) Note: In parentheses is the bootstrap P_value simulated with 400 steps, ***, **, * at 1%, 5% and 10% significance levels, respectively Bartlett-Kernel Window width is set based on (T/100) 2/9 ≈ 3; The test was performed with the xtwest command in Stata according to Persyn and Westerlund (2008) Source: Author's calculations Before implementing two PMG - ARDL or MG – ARDL estimators, model optimal lag is selected from the estimation technique of Kripfganz and Schneider (2018) Panel 4.6: PARDL model optimal lag results PARDL model PARLD model with quadratic polynomial FD ARDL (1 1 0) ARDL (1 1 1 1) FI ARDL (1 1 0) ARDL (1 1 0) FM ARDL (1 1 1) ARDL (1 1 1) FID ARDL (1 1 0) ARDL (1 1 1 1) FIA ARDL (1 1 1) ARDL (1 1 1) FIE ARDL (1 1 0) ARDL (1 0 1 0) FIS ARDL (1 1 0) ARDL (1 0 1 0) FMD ARDL (1 1 1) ARDL (1 0 1) FMA ARDL (1 1 0) ARDL (1 1 1) FME ARDL (1 0 0) ARDL (1 1 0) FMS ARDL (1 1 1) ARDL (1 1 1 1) Note: The optimal lag of the PARDL model corresponds to the variables GROWTH, PTTC, TRADE, GROSS, POP, respectively The optimal lag of the PARDL model with quadratic polynomials corresponds to the variables GROWTH, Financial development, Financial development squared, TRADE, GROSS, POP, respectively Source: Author's calculations 17 4.1.5 Results of testing the linear impact of financial development on economic growth The empirical results of the linear impact of financial development on economic growth are presented in detail in Panel 4.7 Positive linear effects from access and stability of financial institutions, efficiency and stability of financial markets Meanwhile, the opposite linear impact is caused by financial depth and efficiency of financial markets The results also indicate that both in the short and long term, the stability of the financial system promotes economic growth However, these results are linear effects, whereas the relationship between financial development and economic growth is likely to contain nonlinear effects Therefore, the dissertation continues to delve into the analysis of the nonlinear relationship between these two variables