Development

Development

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JES 36,2

Financial development and economic growth
New evidence from a sample of island economies
Boopen Seetanah and Shalini T. Ramessur
School of Public Sector Policy and Management, University of Technology, Mauritius, Republic of Mauritius, and

124
Received March 2008 Accepted November 2008

Sawkut Rojid
Department of Finance and Accounting, University of Mauritius, Republic of Mauritius
Abstract
Purpose – The purpose of this paper is to test the hypothesis that there exists a positive link between financial development and economic growth in island economies. Design/methodology/approach – To study this relationship both static and dynamic panel data techniques (GMM) are used for a sample of 20 island economies over a period of 22 years. Findings – Results from the fixed effect estimates show that financial development has a positive contribution on the output level of the islands. The positive link is also validated using GMM panel estimates and interestingly the presence of dynamics in the modelling is detected. Originality/value – This research narrows the gap that exists in literature as much of the research in this field deals with only developed countries and very few with developing countries. To the best of the authors’ knowledge, no studies have looked into a set of island economies – this study is the first of its kind. Keywords Economic development, Developing countries, Economic growth, Islands. Paper type Research paper

Journal of Economic Studies Vol. 36 No. 2, 2009 pp. 124-134 q Emerald Group Publishing Limited 0144-3585 DOI 10.1108/01443580910955033

I. Introduction The importance of the financial development in promoting economic growth has received much attention in the literature. Overall there exists an overwhelming consensus that well-functioning financial intermediaries have played a...