Financial systems and economic growth: empirical evidence from Australia

Abstract

This paper has examined the dynamic impact of both bank- and market-based financial development on economic growth in Australia – during the period 1980 to 2012. The study uses the autoregressive distributed lag bounds (ARDL) testing approach to examine this linkage. Unlike some previous studies, this study uses financial sector development indices to measure both bank- and market-based financial development. These indices were computed using the method of means-removed average. The empirical results of this study show that while bank-based financial development has a short-run positive impact on economic growth in Australia, market-based financial development has no significant impact on economic growth, both in the short run or in the long run.