Asymmetric cointegration and causality effects between financial development and economic growth in South Africa
Abstract
Purpose – The purpose of this paper is to investigate asymmetric cointegration and causality effects
between financial development and economic growth for South African data spanning over the period
of 1992-2013.
Design/methodology/approach – This study makes the use of the momentum threshold
autoregressive (M-TAR) approach which allows for threshold error-correction (TEC) modeling and
Granger causality analysis between the variables. In carrying out an empirical analysis, the author uses
six measures of the financial development variables against gross domestic per capita, that is, three
measures which proxy banking activity and another three proxies for stock market development.
Findings – The empirical results generally indicate an abrupt asymmetric cointegration relationship
between banking activity and economic growth, on the one hand, and a smooth cointegration
relationship between stock market activity and economic growth, on the other hand. Moreover,
causality analysis generally reveals that while banking activity tends to Granger cause economic
growth, stock market activity is, however, caused by economic growth increase.
Originality/value – This study contributes to the literature by examining asymmetries in the
cointegration and causality relations by using both banking and stock market proxies against economic
growth for the South African economy.