Globalization, Financial Development, and Economic Growth: Evidence from panel cointegration tests and generalized impulse response analysis Author: Uyanga Gantumur, Tsolmon Sodnomdavaa, Dansranbavuu Email: uyanga@mandakh.mn , tsolmon@mandakh.mn , dansranbavuu@mandakh.mn Abstract This study investigates how globalization and financial development affect economic growth. To estimate the impacts from globalization and financial development on economic growth, panel cointegration, fully modified ordinary least square and generalized impulse response analysis are examined for panel data of 86 countries both developed and developing over the period 1993-2013. To compare the effects of globalization and financial development in different religion countries, the full sample, covering eighty six countries, is divided into four religion groups. The empirical results are shown as the followings: economic and social globalization could increase economic growth only in Europe. As to the effects of financial development on economic growth in different areas, increasing M2/GDP could raise economic growth for most of areas, except for Africa and Middle East; higher domestic credit to private sector/GDP and gross domestic saving/GDP could increase economic growth for most of areas, except for Asia and Pacific. Keywords: Globalization, Financial Development, Economic Growth, Panel Cointegration
Introduction There are many literatures which have investigated the association between financial development and economic growth for a long time. Recently, the development of globalization has become more important lately. Globalization is “an increase in the extent to which individuals and institutions transact or exchange with others based in nation states other than their own, or otherwise influence them through their economic and social behavior�(Centre For Economic Policy research, 2002). Hence, more literature have been discussed the effects of globalization (including the impacts on economic growth, distributional consequences, government expenditure, financial markets, etc.) in different economies, and their finding show inconsistent outcomes and arguments. There some theory argues that globalization can be global beneficial to increase GDP, because free trade can improve economic growth. Economic globalization can cause some factors, such as scale economies, competition, and technological innovation, and further can improve economic growth in the long run(Bergh and Nilsson, 2014). On the contrary, Stiglitz (2004) debates that globalization could cause some harmful impacts on employment and bring about some risks. Nevertheless, globalization has increasingly affected the internationalization of different sectors. However, the existing literatures have not covered the index of globalization into the estimating effects of financial development on economic growth so far. To fill the gap of the existing empirical papers, this study set up an empirical model covering the index of globalization and financial development at the same time. Globalization has many different dimensions, but most of past literature only targets the