Given these results, it is justified to test nonlinear relationships as applied in our study. The most beneficial effects from developing capital markets can be achieved by those countries that record a relatively low level of stock market capitalization. 1, pp. Financial development is part of the private sector development strategy to stimulate economic growth and reduce poverty. These authors use as an alternative the atheoretical approach in estimating empirical models of economic growth. Studies With more capital, investment will expand and this will speed up the economic development of a country. IMF Working Paper 12/161, International Monetary Fund, Washington, Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Due to the development of technology and the introduction of computers in the financial system, the transactions have increased manifold bringing in changes for the all round development of the country. A vector auto-regression appraisal. In the case of the change in a given variable, only a linear impact is tested without the term (fin_dev)2 in the regression equation. The financial system is capable of bringing an uniform interest rate throughout the country by which there will be balanced movement of funds between centres which will ensure availability of capital for all kinds of industries. Their analysis involves the creation of a stock exchange and includes a longer time period than the majority of the other studies. Brookings Institution, Washington, Mishkin FS (2002) Ekonomika pieniądza, bankowości i rynków finansowych (przekład A. Minkiewicz). J Dev Econ 50:119–146. For the OECD countries and 3-year data, the coefficient of the variable (nonp_loans)2 is insignificant (p value = 0.250) meaning that the relationship is linear. 2014, p. 22).Footnote 2. The authors find that economic growth accelerates relative to the rest of the world after the opening of the stock exchange. n J Econ Dev 35:57–80, Fase MMG, Abma RCN (2003) Financial environment and economic growth in selected Asian countries. doi:10.1016/S1049-0078(99)80100-6, Article  As we test the nonlinear impact of the financial system on economic growth, the squared form of this variable, (fin_dev)2, also appears in the regression equations. Thanks for helping us if we are students The development of the financial system follows then the economic growth (Robinson 1952, on basis of Al-Yousif 2002, p. 132). This is because for many countries the degree of economic openness is rather correlated with the size of a country and not with economic growth. The data in Table 7 indicate that most of the estimated coefficients are statistically insignificant. Low-income countries are characterized by poor financial policies in terms of both the formulation and implementation. The economic development of any country is dependent on its financial system which includes its banks, stock markets, insurance sector, pension funds and a government-run central bank with authority. Based on the analysis of publications across the span of several decades it is clear that the interest in the financial system is rising. Prochniak, M., Wasiak, K. The impact of the financial system on economic growth in the context of the global crisis: empirical evidence for the EU and OECD countries. They include only the levels of the respective financial sector variables. Creel et al. Rev Int Econ 9:443–454. Foreign trade is promoted due to per-shipment and post-shipment finance by commercial banks. Econ Lett 74:339–345. To make graphical results more representative, the values of the financial sector variables plotted on the horizontal axis range between the 5th and 95th centile (this range is different for various groups of countries and that is why the functions on the figures have a different length). Table 4 and Fig. Following works by Al-Yousif (2002), four key areas of researched subject can be named.Footnote 1. 3. J Econ Lit 35:688–726, Levine R (2004) Finance and growth: theory and evidence. By providing these services, the financial sector can enhance resource allocation and increase aggregate savings. The market also provides opportunities for the banks to invest their short term idle funds to earn profits. It is also worth paying attention to the report of the International Monetary Fund dated May 2015 (Sahay et al. PWN, Warszawa, Shan J (2005) Does financial development ‘lead’ economic growth? 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