Financial development and economic growth in BRICS and G-7 countries: a comparative analysis

Abstract

The relationship between financial development and economic growth is an important issue for both developed and developing countries through which the extent of economic growth and the sophistication of the country’s financial markets are linked. The research studies the existence of a relationship between financial development and economic growth using a sample of BRICS and G-7 countries for the period of 1996 to 2013. The study objective was to conduct a comparative analysis of the relationship between financial development and economic growth within BRICS and G-7 countries. A panel data analysis was used to analyse secondary data from 5 BRICS countries (Brazil. Russia, India, China and South Africa) and G-7 countries (Canada, France, Germany, Great Britain, Italy, Japan and United States).Variables used include, economic growth, stock market capitalisation, total investment growth, interest rates and population growth. This study found that real interest rates and total investment is positively related to economic growth in both BRICS and G-7; while other variables such as stock market size, do play a significant role in explaining economic growth in both BRICS and G-7 countries and insignificant variables such as population growth. Findings of this study suggests there are no major difference between developed and developing countries with regards to their financial development and economic growth. This study may assist BRICS and G-7 countries to improve their economic growth structure and financial development systems over time.