The dynamic effects of banking, life insurance, and stock markets on economic growth

This study provides new evidence on the long- and short-term effects of life insurance, banking, and stock markets on economic growth using the pooled mean group (PMG) technique. The sample consists of 31 countries and covers the period from 1981 to 2008. We contribute to the existing literature in two ways. First, we examine whether variations in time series averaging methods, used for a generalized method of moments estimator (GMM), affect the robustness of the effect of financial activities on growth. Second, we explore the long- and short-term effects as well as the nonlinear effect of the finance-growth nexus. The results of the entire sample analyzed using GMM and PMG estimators provide robust evidence that private credit impedes economic growth. However, the effects of life insurance and stock market on growth are not robust for GMM estimator using different time series averaging procedure. Our findings further suggest that the effects of financial activities on growth vary with the time period, income level, and financial development. That is, countries at different levels of development should engage in different financial activities to ensure sustainable growth. (C) 2017 Elsevier B.V. All rights reserved.