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Accepted Manuscript

Still on the Causality Among Globalization, Institution and Financial Development:


Further Evidence From Three Economic Blocs

Ibrahim Muhammad Muye, Ph.D Candidate, Ibrahim Yusuf Muye, Lecturer

PII: S2214-8450(16)30077-1
DOI: 10.1016/j.bir.2016.10.001
Reference: BIR 87

To appear in: Borsa istanbul Review

Received Date: 4 July 2016


Revised Date: 20 September 2016
Accepted Date: 7 October 2016

Please cite this article as: Muye I.M. & Muye I.Y., Still on the Causality Among Globalization, Institution
and Financial Development: Further Evidence From Three Economic Blocs, Borsa istanbul Review
(2016), doi: 10.1016/j.bir.2016.10.001.

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Still on the Causality Among Globalization, Institution and Financial Development:

Further Evidence From Three Economic Blocs.

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By

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Ibrahim Muhammad Muye1*, Ibrahim Yusuf Muye2

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1
Corresponding author: Ph.D Candidate, Faculty of Economics and Management, University Putra Malaysia,
43400, Serdang-Malaysia.
Email: muyeibrahim@gmail.com
2
Lecturer, Department of Economics, Faculty of Arts and Social Sciences, Federal University, Lokoja-Nigeria.
Email: ibraehym@gmail.com
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ABSTRACT

This paper employs several techniques to study the dynamic effect and causality among

globalization, institutions and financial development. Specifically, we use the panel

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cointegration technique by Pedroni (1999, 2004); the DOLS approach by Kao and Chiang

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(2000); the FMOLS; the PMG technique of Pesaran et al. (2009) and the panel VECM causality

approach. The panel cointegration test shows the existence of cointegration among our dataset.

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The Granger causality test demonstrates that causality runs from globalization to institutions,

and institutions in turn Granger cause financial development specifically in the banking sector in

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the BRICS and MINT blocs. Globalization is further found to have a causal impact on the stock
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market, although bypassing the institutions channel. For the PMG, DOLS and FMOLS results,

there is evidence of a positive long run relationship among globalization, institutions and
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financial development.
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KEY WORDS: Globalization, Institutions, Financial development, Granger causality, Panel data
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analysis.
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1 INTRODUCTION
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It is well established in the existing body of literature that financial market development is a
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critical factor to economic growth (see De Gregorio & Guidotti, 1995; Demetriades & Hussein,

1996; Levine, 1997; Ram, 1999; Mundaca 2009; Hassan, Sanchez, & Yu, 2011; Zhang, Wang, &

Wang, 2012; Bittencourt, 2012). It is evident that most countries with a strong financial sector

grow better than their peers. Financial markets, and institutions operating in them, are capable of

providing information concerning risk diversification and profitable ventures, and may promote

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mobilization of resources (Kim, Lin, & Suen, 2010). Moreover, a well-developed financial

market is believed to assist in improving the efficiency of resource allocation and capital

formation, promoting long run economic growth as a result (see Levine, 2005; 1997). Therefore,

a prime concern for governments hoping to increase their savings and direct them to productive

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investments is to establish a well-functioning financial sector. Given that the role played by the

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financial market in economic growth is well documented, it is interesting to ask why some

countries financial sectors remain underdeveloped despite the advantages of this sector to the

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economy.

Hence, understanding the determinants of financial development is important, especially for

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developing countries, because it facilitates economic growth and reduces inequality and poverty
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(see Claessens & Perotti, 2007; Mookerjee & Kalipioni, 2010; Gimet & Lagoarde-Segot, 2011;

Seven & Coskun, 2016; Chen & Kinkyo, 2016). Furthermore, it is empirically argued that
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financial development positively affects two of the most important problems faced by countries,
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especially developing countries. Denizer, Iyigun, and Owen (2002) suggest that finance can
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influence macroeconomic cycles, pointing to the fact that a highly developed financial system

may allocate savings more efficiently, enabling the market to more easily absorb any form of
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distress. The aim of this paper is to examine whether globalization and institutions determine

financial development in three economic blocs (namely BRICS, MINT and the ECOWAS)1. As
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the argument regarding the impact of globalization on economic growth is limited in the
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literature (see Dreher, 2006 and Chang & Lee, 2010), a positive impact from globalization on

financial development will offer a medium through which globalization influences economic

growth.

1Brazil, India, China & South Africa; Mexico, Indonesia, Nigeria, & Turkey; Benin, Burkina Faso, Cabo Verde,
Cote DIvoire, The Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Senegal, Sierra Leone and Togo.

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In recent years, these global economic blocs have been characterized by a shift towards

increasing financial integration and a high degree of trade liberalization. The decision to include

the BRICS countries is motivated by the fact that they are in the first stage of economic and

financial development (Tamazian, Chousa, & Vadlamannati, 2009) and there has been increasing

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financial integration among the member states, as evidenced in the recent establishment of the

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New Development Bank in mid-2014. Individually, the countries have increased their openness

to world trade, with China joining the World Trade Organization in 2001 after decades of

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negotiations. This move has seen China relax most of its trade restrictions and become more

globalized.

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The MINT countries have a large young population, which makes for a strong workforce2; have
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legal systems that are favourable to business growth; have governments that are pro-economic

growth; and are geographically well-positioned for trade. Nigeria, for instance, has a well-
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regulated and well-capitalized banking system, and opportunities to expand retail credit3.
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ECOWAS, on the other hand, was established with the sole mandate of promoting economic
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integration in all fields of activities among member countries4. The increased economic

integration has stimulated increased cross-border trade and capital flows, as well as foreign direct
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investment.

Even though globalization has been gaining increasing popularity in these economic blocs, to the
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best of our knowledge, there has been no empirical study to trace the relationship between their
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level of globalization and financial development.

2 Potential for savings which can be channeled towards productive investment.


3 See IMF Country Report No. 13/140.
4 See http://www.ecowas.int/about-ecowas/basic-information/

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Relatively little attention has been given to the role of globalization in influencing institutional

reforms (see Law, Azman-Saini, & Tan, 2014; Stiglitz, 2000; Stulz, 1999). In their study, Law et

al. (2014) used the International Country Risk Guides institutional quality variables to test the

direction of causality between economic globalization and institutions in East Asian countries.

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Our study will follow a similar procedure to test the causality between these two variables in the

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three sample blocs and contribute to the extant literature by encompassing all aspects of

globalization, unlike Law et al.'s (2014) study, which looked only at economic globalization.

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Furthermore, we contribute to the literature by examining this relationship from three distinct but

important economic blocs which are fast growing and are transitioning to be among the worlds

globalized economies.
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2 LITERATURE REVIEW

Recently, researchers advocate that globalization is strongly linked to financial development


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through the institutional channel. A theory by Frederic S. Mishkin predicts the degree of
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globalization through institutional channels on financial development. Mishkin (2009) opines

that institutional reforms can be improved thereby encouraging financial development and
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economic growth through globalization. He argues that access to funds increases, and cost
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reduces for those willing to engage in productive investments in a country if the government
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opens its financial markets to foreign capital, and also, liberalizing the internal markets to

international goods can further the development of superior institutions. Arguing further, he

maintains that fulfilling a contract quickly and fairly by a legal system essentially supports a

robust right to property and financial development. The implication of this argument is that

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globalization can motivate national governments to reinforce institutions that promote financial

development.

On their part, Rajan and Zingales (2003) argue that globalization, in form of trade openness and

capital flow improves financial sector development by weakening the incentives of powerful (or

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incumbent) businesses to prevent financial development by reducing entry and competition and

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the relative political power of these powerful business may decrease with globalization as well.

Consequently, globalization has a beneficial effect on financial development. A recent study by

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Le, Kim, and Lee (2016) reports that better governance and institutional quality foster financial

sector development in developing economies. Law, Azman-Saini, and Tan (2014) examined the

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effect of economic globalization on financial development in East Asia and their result show that
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in the short-run, economic globalization is granger caused in institutions, with better institutions

promoting financial development, especially in the banking sector. Although their study suggests
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that economic globalization favorably influence stock market development even without good
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institutions.
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On a general note, their study gives further evidence to the proposition of Mishkin (2009)

demonstrating that economic globalization affects financial development through the


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institutional channel both directly and indirectly. Although, one of the main disadvantages of

their study is that they adopted only economic globalization ignoring social and political
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globalization and accordingly to Johnson (2002), globalization is to a large extent more than the
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mere movement of goods and services across borders. This may have an effect on the

consistency of their result.

Many other studies have been carried out to examine the role of liberalization in the development

of financial markets. Chinn and Ito (2006) conducted an investigation to see if financial

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liberalization drives financial development following the control of institutions. They reveal that

a higher degree of financial liberalization is instrumental both in a direct and indirect way to the

development of the financial sector however, this is subject to a country having a suitable degree

of bureaucratic and legal development, which they found to be more widespread among the

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emerging than developing economies. Specifically on the equity market development, they argue

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that a high degree of institutional quality, lower degree of corruption and a high degree of law

and order may be a catalyst for its deepening. In the same vein, focusing on the Asian

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economies, Ito (2006) examine whether opening the financial sector improves financial

development while considering the degree of institutional and legal development and the result

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indicates that equity market development is supported by a high degree of financial
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liberalization, although this occurs exclusively with a specific degree of bureaucratic and legal

development. With this finding, a presumption can be made that a lot of emerging economies in
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Asia have been luckier in deriving the advantage of financial openness due to their
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comparatively outstanding degree of bureaucratic and legal development.


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Using yearly data from industrialized and developing nations and the dynamic panel evaluation

method, Baltagi, Demetriades, and Law (2009) give proof which indicate that financial and trade
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liberalization significantly and statistically spur banking sector development. Revealing further

that the slight impact of trade liberalization is negatively linked with the level of financial
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liberalization, showing that a fairly closed economy stand to gain a lot from liberalizing their
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financial and/or trade sectors. In terms of trade openness, Do and Levchenko (2007) suggests

that trade openness can trigger financial development. Svaleryd and Vlachos (2002) submit that

the correlation that exists between financial development and open trade policies is clearly

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positive. Huang and Temple (2005) finds that increasing external trade openness is typically

followed by a sustained improvement in financial depth.

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Table 1: Summary of some related literature
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Authors Sample country Time period Methodology Major findings


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Le, Kim, and Asia 1995-2011 Dynamic GMM Better governance and
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Lee (2016) institutional quality

foster financial sector


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development in

developing economies.
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Law, Azman- East Asia 1984-2004 Panel VECM, Economic

Saini and Tan DOLS globalization causes

(2014) technique institutional quality,

while institutional

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quality enhance

banking sector

development

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Chinn and Ito Series of Financial globalization

(2006) 108 countries 1980-2000 regressions spurs equity market

U growth upon
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attainment of a
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threshold in

institutional quality.
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Ito (2006) Series of Financial globalization

Asian countries 1980-2000 regressions spurs equity market


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growth upon
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attainment of a

threshold in

institutional quality.

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Baltagi, GMM Openness/globalization

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Demetriades Developing and 1980-2003 statistically determine

and Law (2009) industrialized banking sector

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countries development. Provided

partial support for the

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hypothesis.
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Kim et al. (2010) examine the dynamic impact of opening the trade sector on the development of
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the financial market with the aid of the pooled mean group estimation technique put forward by
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Pesaran, Shin, and Smith (1999). Their study was based on 88 countries between the period 1960

to 2005 and they find a positive relationship between trade openness and financial development
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in the long run but the relationship is negative in the short run. Although trade openness

negatively affects finance in the short run, it eventually benefits financial development.
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3 EMPIRICAL MODEL

In the existing literature, theory predicts that financial market development is a result of interest

rate and income. This is built on the endogenous growth literature and the McKinnon-Shaw type

model (Law & Habibullah, 2009). According to McKinnon (1973), the interrelationship between

money and capital results in a positive link between output level and financial development. For

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his part, Shaw (1973) developed a model which specifies that, through debt intermediation,

financial markets become instrumental to investment, which successively enhances output level.

From both models, we learn that a positive interest rate promotes financial development by

increasing the level of savings mobilization and triggering growth as a result of increase in the

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size and productivity of capital (Law & Habibullah, 2009). Effectively, investors are deterred

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from investing in low return businesses due to the positive effect of higher interest rates on the

average productivity of physical capital (Fry, 1997). Similarly, the endogenous growth

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researchers also predict a positive link between income, financial development, and interest rates

(King & Levine, 1993). Therefore, based on these assumptions, we can specify a financial

development relationship as follows:


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= , 1
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where FSD represents financial sector development, RGDPC stands for the per capita real GDP
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and R represents the real interest rate.

Nevertheless, we have omitted the real interest rates for this study because data on interest rates
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for most of our panel members is irregular.

The above equation is modified to include globalization and institutional quality thus:
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= , , 2

Where INSQ is institutional quality and GLOB represents globalization. We further expand

equation (2) to a model which will provide the basis for the empirical models that are estimated

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in this study utilizing four dynamic panel data techniques, namely the DOLS, FMOLS, PMG and

MG.

ln FDit = 0i + 1i ln GLOBit + 2i ln RGDPC + 3i INSQit + it (3)

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4 ECONOMETRIC METHOD

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4.1 Unit Root Test

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Even though most dynamic panel data estimators (such as MG and PMG) are suitable for

estimating either I(0) or I(1) integrated data series (or a mix of both), if the order of integration

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happens to be I(2), the PMG estimator produces spurious estimates (Asteriou & Monastiriotis,
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2004). Hence, prior to conducting a panel cointegration test, it is important to ascertain the order
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of integration of the variables.

We use four different unit roots tests: the Fisher augmented Dickey-Fuller, Im, Pesaran and Shin
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(IPS), Levin, Lin and Chu, and Breitung tests. The ADF test is based on the following
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regression:
$ !

= + + ! + " #! ! + & 4
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%!

where denotes the first difference operator, represents the variable tested for unit root; is
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the constant; represents the time trend variable; and to avoid the problem of autocorrelation in
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the residuals, ( is the number of lags included. Schwarze Bayesian Criteria are used to select the

lag length in the ADF regression. For this test, the null hypothesis the series is non-stationary: in

other words, it contains a unit root.

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In order to avoid spurious regression, the IPS, which is also based on the ADF procedure, was

further employed to test the stationarity of our variables. The IPS test combines the information

from the cross-sectional as well as the time series dimensions, such that fewer time series

observations are required for the test to have power. A few economics and econometrics

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researchers have found the IPS to have superior power in analyzing long-run relationships in

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panel data (see Kjosevski, 2012), so we will also utilize this procedure for further depth in our

test results. The IPS begins by defining a separate ADF regression for each panel member with

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individual effects and no time trend. The regression can be specified in the following manner:

) = +* ), +" ) , + , 5

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! + +
+%!
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where i = 1, . . .,N and t = 1, . . .,T
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The IPS uses separate unit root tests for the N panel members. As stated earlier, the test is based

on the ADF and averaged across groups. After testing the separate ADF regressions, the average

of the t-statistics for * from the individual ADF regressions . /0 * is:


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2
1
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=
.2/ ". / * 6
%!

The . is then standardized and it is indicated that the standardized . statistic converges to the
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standard normal distribution as N and T. Im, Pesaran and Shin demonstrated that the . test
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has a superior performance where N and T are not large. In the case where the errors in different
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regressions contain a common time-specific component, they suggest that a cross-sectionally

demeaned version of both tests be used.

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4.2 Cross-sectional Dependency Tests

One of the most important issues to consider when dealing with panel data Granger causality is

cross-sectional dependency. As a result of globalization and increasing integration among

countries, a structural change or shock occurring in one country can influence other countries,

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such as the global financial meltdown which started in the USA and was felt around the globe.

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Hence, when examining panel data causality among globalization, institutions and financial

development within the blocs considered in this study, it is essential to conduct a series of cross-

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sectional dependency tests.

A number of empirical studies have used the Breusch and Pagan (1980) LM test to examine

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cross-sectional dependency in panel. The following model can be used to calculate the LM
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statistic:

) =4 + + 5 6 = 1,2 ; . = 1,2 , 7
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Where the cross-sectional and time dimensions are 6 and ., 4 and denote the individual
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intercepts and slope coefficients that are allowed to vary across panel, while represents the
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explanatory variables. In the LM statistic, we test the null hypothesis of no cross-sectional

dependence : <=>5 , 5+ ? = 0 for all . and 6 B against the alternative hypothesis of

presence of cross-sectional dependence : <=>5 , 5+ ? 0 for at least 1 pair of 6 B.


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Breusch and Pagan (1980) developed the following LM test to examine the null hypothesis:
2 ! 2

CDE = " " FG H+ 8


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%! +% I!

where FG H+ is the estimated correlation coefficient among the residuals obtained from individual

OLS estimation of Eqn. (7). Assuming null hypothesis, the LM test has a chi-square

asymptotically distributed with degrees of freedom such that 1 /2. However, Pesaran

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(2004) maintained that the LM statistic is only valid in a case where T is sufficiently large and N

is relatively small. He put forward another LM statistic for testing cross-sectional dependency in

order to overcome this problem (which is generally referred to as the CD test)

2 ! 2
1
=L " " > FG H+ 1? 9
1

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%! +% I!

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4.3 Panel Cointegration Tests

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We carry out a panel cointegration test in order to analyze the possibility of a long run

convergence among our data series. The main objective of the panel cointegration test is to

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combine information on similar long run relationships and simultaneously permit short run
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changes and fixed effects to be heterogeneous across the various panel members. Accounting for

such heterogeneity offers some benefits, since it is illogical to presume that the vectors of
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cointegration are similar across all panel members (Law et al., 2014). Owing to these and based

on the Engle and Granger (1987) cointegration model, which takes into consideration a sizeable
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amount of heterogeneity, Pedroni (2004;1999) suggested a number of test statistics. For this
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study, we construct the test statistics that employs the residuals from the following assumed
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cointegrating regression on the basis of Equation (3) above, with the test for the null hypothesis

of absence of cointegration being established on the residuals of , utilizing:

, = P , ! + 5
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(10)
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This method allows for significant long and short run heterogeneity, since all the in Equation

(3) differ across the panel members. In reality, the fixed and dynamic effects can vary across

panel members; under the alternative hypothesis, the vector of cointegration can also vary across

panel members.

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Pedroni (2004; 1999) developed seven panel cointegration tests on the basis of the cointegrating

residuals of , . Of these seven tests, three are considered to be group mean panel cointegration

tests and are based on the between-dimension. They are formulated by dividing the numerator by

the denominator before adding over the N dimension. The other four, referred to as panel

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cointegration tests, are based on the within-dimension and are formulated by adding both the

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numerator and the denominator figures (separately) over the N dimension.

Regarding strength, Pedroni (2004;1999) demonstrates that the panel variance and group

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statistics are the weakest, with the panel-ADF (Augmented Dickey-Fuller) performing better,

while the group-ADF happens to be the strongest.

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4.4 Dynamic Ordinary Least Squares (DOLS)

This study applies the DOLS estimator to estimate the long run relationship, given that the
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variables are cointegrated. This method was put forward by Stock and Watson (1993) and later

extended by Kao and Chiang (1999). It is widely known that due to problems of endogeneity, the
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ordinary least squares estimates of the cointegration regression are biased (Apergis, Filippidis, &
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Economidou, 2007). The DOLS estimator accounts for this bias (in first difference) by

increasing the fixed regression with lags, leads, and contemporaneous values (Law et al., 2014).
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The DOLS estimator can be derived from the following equation:


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j= p2
yit = zit 1 + cij zit + j + it (11)
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j = p1

where Q + is the coefficient of a lead or lag of first differenced variables.

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The Fully Modified OLS

Besides the DOLS approach, and considering that the properties of our data are first order

integrated, as well as the small sample size5, this paper also used the Pedroni (2000) FMOLS

approach. This approach addresses the bias caused by endogeneity of the regressors by

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incorporating the Phillips and Hansen (1990) semi-parametric correction into the OLS estimator.

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Consider the following cointegration system for panel data:

) = + ! + R

= + ,

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! (12)

where the vector error process it = (it , it ) is a stationary with covariance matrix represented

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by . Following Pedroni (2000), the between-dimension, group-mean panel FMOLS estimator

can be written as follows:


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1
T N
2 T
GFM = N ( xit xi )
1
( xit xit )zit* T i (13)
i =1 t =1 t =1

and [ ]^H! +
W H! VXY0 Z >]^HH +
W HH ?.
W W
where T = T T V W XY0 Z
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XX0 W XX0
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( )

1 T
1 T 2
( )
2
=N FM 11i it

*
t * 2
,i L x xit (14)
GFM
t =1 t =1

where the traditional FMOLS estimator applied to each panel member is G`a,

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. The properties of
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the associated t-statistics are standard and normally distributed as T and N .

5 The BRICS and MINT are small in number, with 5 and 4 members respectively.

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4.5 The Mean Group and Pooled Mean Group

The MG and the PMG were proposed by Pesaran and Smith (1995) and Pesaran et al. (1999)

respectively. Both of these estimators are based on the maximum likelihood procedure and the

autoregressive distributed lag (ARDL), considering the long run equilibrium as well as

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accounting for dynamic heterogeneity of the adjustment process (Demetriades & Law, 2006).

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Specifically, the PMG imposes a restriction on the long run parameters to be similar across panel

members, but allows the short run parameter (together with the speed of adjustment), intercepts,

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and error variances to be different across the panel (Kim et al., 2010). Although the MG

estimates are consistent, Pesaran and Smith (1995) caution that if the long run homogeneity

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restrictions are correct, the PMG becomes more appropriate because the MG estimates will be
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inefficient, which may yield misleading results. As indicated by Pesaran et al. (1999), the

Hausman-type statistic can be used to select the most suitable estimator between the MG and the
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PMG.
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Based on Pesaran et al. (1999), the unrestricted error correction for the ARDL model for the
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dependent variable (FSD) can be defined as follows:


$ ! d !

) = * ) , ! + , !
b
+ " c + ) , + + " b
+ , + + 5 + e
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+%! +%

i = 1, 2, 3, N; t= 1, 2, 3, ..T (15)
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where ) is a scalar dependent variable, * is a scalar coefficient on the lagged dependent


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variable, is the (k x 1) vector of variables for individual panel member (i), 5 denotes fixed

effects, b
is the (k x 1) vector of coefficients on independent variables, c + is the scalar

b
coefficient on the lagged first difference of the dependent variable, and + are (k x 1) coefficient

vectors on the first difference of the independent variables together with their lagged values. e

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are disturbances assumed to be distributed independently across the panel members and time

period, with variances f H > 0 and zero means. It is assumed further that * < 0 across the panel,

and hence, that there is a long run relationship between ) and .

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) = g b + i = 1, 2, 3, . N; t = 1, 2, 3, . T (16)

where g b = is the (k x1) vector of long run coefficients, and is stationary with possibly
i0j

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k0

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non-zero means (which includes fixed effects). Then Equation (9) can be redefined as follows:
$ ! d !

) = , !* + " c + ) , + + " b
+ , + + 5 + e 17
+%! +%

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where denotes the error correction term given by Equation (10). Consequently, * is the error
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correction coefficient which measures the speed of adjustment towards the long run equilibrium.
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Due to the characteristics of the PMG stated earlier (e.g. restriction of long run coefficients to be
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equal across sections), we cannot assume homogeneity of long run policy parameters a priori.

Hence, we conduct a Hausman-type test (as in Hausman, 1978) to determine this in all
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specifications. The common long run coefficients are determined by pooled maximum likelihood
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estimation. We can denote these estimators by:

2%! *o 2%! p 2%! cq +


, GEam = , cG+Eam =
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*lEam = , B = 1, . . , ( 1,
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2%! #q +
#G+Eam = , B = 0, , r 1, g^Eam = gp 18

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4.6 Causality Test

Once the existence of cointegration among the data series is confirmed, it is common to examine

the direction of causality among the variables of interest. This cannot be achieved with the panel

cointegration analysis. This study employs the panel VECM (vector error-correction model) to

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investigate the direction of causality among institutions, globalization and financial development.

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One of the advantages of panel causality is that it allows one to capture the effects of feedback

among variables. Some researchers (such as Li, 2001) maintain that the VECM is able to account

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for the dynamics of the relationship within a temporal causal framework. This feature of panel

causality will enable us to examine Mishkins hypothesis. For this study, we first estimate the

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long-run model defined in Equation (3) to obtain the estimated residuals using the Engle and
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Granger (1987) two-step approach. Then, determining the lagged residuals from Equation (3) as

the error correction term, we estimate the following dynamic error-correction model:
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g!
y |y |
! !!$ !H$ !u$ !v$ $
x Hv$ { x $ { g
s t = s t + $%! x { x { + sgu t ~ +
H } H!$ HH$ Hu$ H
uv$ x
!
D

u
x u!$ uH$

uu$
{ $
{
v w v!$ vH$ vu$ vv$ z w $ z gv
TE

,!
,
H ,
,u
,v
(19)
EP

where denotes the first difference, ECT represents the error-correction term, q is the lag length
C

and is the error term: these terms are serially uncorrelated. For the most appropriate lag
AC

selection, we use the popular vector autoregressive lag length selection criteria: in other words,

the Akaike and Schwarz information criteria. Regarding Equation (9) above, the long run

causality is shown by the statistical significance (using the t-statistic) of the respective ECT,

while the short run causality is established by the statistical significance of the partial F-statistic

19
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related to the corresponding independent regressors. Provided that the right-hand side of the

VECM equations are similar across the equations, the least squares estimator is employed. In this

case, according to Hamilton (1994), efficiency will not be lost. Additionally, if all the data series

are stationary at first difference, the least squares estimator becomes appropriate. Our study

PT
fulfils the above conditions: hence, we estimate the panel VECM equations with the least squares

RI
estimator and further use the Wooldridge (2002) test for panel data serial correlation to examine

the validity of the VECM estimation.

SC
5 DATA

U
Our data consists of a panel of observation for the period 1984-2013. Two different indicators
AN
are employed for financial development, namely capital market development6 and banking sector

development. Both proxies are expressed as a percentage of GDP. These data are collected from
M

the World Banks World Development Indicators (WDI, 2015).

Data on real GDP was also sourced from the WDI based on 2005 constant US prices while the
D

institutional quality dataset are obtained from International Country Risk Guide- published on a
TE

monthly basis by the Political Risk Services. We used 3 of these indicators from the ICRG which

are most relevant to the aim of this study. These indicators are: (i) Rule of Law, (ii) Control of
EP

Corruption and (iii) Bureaucratic Quality. The first 2 indicators are scaled from 0-6 whereas the
C

last one 0-4 with higher values indicating better institutions while aggregating them into a single
AC

measure by adding up7. Due to their different scaling method, we re-scaled them appropriately8

and hence, the theoretical range of our institutional quality index is 0-30.

6 Data for this indicator is available for only the BRICS and MINT countries. For ECOWAS countries, data is at
best, patchy.
7 According to Knack and Keefer (1995), there exists high correlation among these indicators which may result in
multicollinearity. So for fear of omitting any of them from the estimation, the 3 institutional quality variables are
summed together as one.

20
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Our measure for globalization was drawn from the Swiss Economic Institutes KOF database

(Konjunkturforschungsstelle). The index was proposed by Dreher (2006) and updated by Dreher,

Gaston, & Martens (2008). The index is scaled between 0 (not globalized) and 100 (highly

globalized).

PT
RI
6 EMPIRICAL RESULTS

SC
We test for unit root using the Im, Pesaran, and Shin (2003); Levin, Lin, and Chu (2002);

Breitung (1999) and Maddala and Wu (1999). Each of the tests was carried out to include an

U
intercept, as well as with an intercept and linear trend. As indicated in Tables 2a,b, & c below,
AN
(almost) without exception, the unit root tests show all the data series to be nonstationary at level

but taking the first difference, they become stationary. After including a linear trend, Fisher ADF
M

statistics and Breitung (1999) hardly rejects the null hypothesis of non stationarity. By and large,

the presence of a unit root at level and the absence of any at first difference is supported by the
D

unit root test results.


TE

Furthermore, as stated earlier, it is important to carry out cross-sectional dependency test before

examining panel data Granger causality. This is due to the highly integrated nature of the
EP

countries analyzed in this study. We use the CD (Pesaran, 2004), to examine this with the null
C

hypothesis being no cross-sectional dependence. We found that all of the variables are rejected at
AC

p = 0.01 in all the three blocs9. Thus, the result indicate not only that these explanatory variables

influence the variable of financial development, in each country, but also that the regression error

terms among countries also influence one other. Therefore, the results suggests that the three

8 By multiplying the first two by 5/3 and the last one by 5/2 to unify them
9 These results are not shown here in order to conserve space.

21
ACCEPTED MANUSCRIPT

blocs examined in this work have highly integrated economies, and that when a shock occurs in

one of them, it will affect the others within the respective blocs.

Tables 3a, b and c reports the results of the panel cointegration tests based on Pedroni (1999,

2004). For Models 1 and 2 where the proxy for financial development is the banking sector

PT
variables, the empirical results for the BRICS panel indicates that of the seven statistics, at least

RI
three reject the null hypothesis of no cointegration. While for the MINT and ECOWAS panels, at

least one of the statistics reject the null hypothesis.

U SC
AN
M
D
TE
C EP
AC

22
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Table 2a: Panel unit root test results for BRICS

GLOB PC DC MC TR VT INSQ RGDPC


No Trend No Trend No Trend No Trend No Trend No Trend No Trend No Trend

PT
trend trend trend trend trend trend trend trend
Levels
LLC -3.20 1.25 0.24 -1.89 0.11 -0.50 -0.88 1.58 -0.89 1.32 -2.56 0.25 -0.77 -0.77 2.20 -1.38

RI
(0.00) (0.89) (0.60) (0.023 (0.54) (0.31) (0.19) (0.94) (0.19) (0.91) (0.01) (0.60) (0.22) (0.22) (0.99) (0.08)
*** )** ** *
IPS -0.95 3.07 1.16 -1.90 0.44 -0.12 0.50 -0.45 -0.63 -0.00 -1.63 0.07 -1.10 -0.74 3.50 -0.25

SC
(0.17) (1.00) (0.88) (0.029 ( 0.67) ( 0.45) (0.69) (0.32) (0.26) (0.50) (0.05) (0.53) (0.16) (0.23) (1.00) (0.40)
)** **
Breitun 1.01 -0.59 -0.62 -1.57 -1.10 1.31 -2.70 0.13

U
g (0.85) (0.29) (0.27) (0.06) (0.14) (0.91) (0.00) (0.55)
* ***

AN
Fisher 13.73 1.15 8.09 19.90 12.57 12.69 5.79 9.60 10.75 10.06 17.13 11.27 14.81 12.84 2.06 9.68
ADF (0.19) (1.00) (0.62) (0.30) (0.25) (0.24) (0.83) (0.48) (0.38) (0.44) (0.07) (0.34) (0.14) (0.23) (1.00) (0.47)
*

M
First
Differe
nce

D
LLC -3.07 -3.77 -7.67 -6.04 -6.37 -5.16 -5.38 -4.20 -3.55 -3.58 -6.34 -6.59 -5.07 -3.96 -4.09 -3.21
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

TE
*** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ***
IPS -3.36 -4.39 -7.45 -6.06 -6.44 -5.40 -6.32 -4.89 -5.93 -4.70 -5.38 -5.08 -5.30 -3.93 -3.88 -2.91
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
EP
*** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ***
Breitun -4.37 -5.96 -5.57 -4.00 -4.26 -3.79 -5.61 -2.61
g (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.01)
*** *** *** *** *** *** *** **
C

Fisher 30.48 41.06 68.24 52.54 59.49 46.74 54.80 40.11 50.23 38.20 46.84 41.70 47.27 33.87 33.89 25.59
AC

ADF (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
*** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ***

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Table 2b: Panel unit root test results for MINT

PT
GLOB PC DC MC TR VT INSQ RGDPC
No Trend No Trend No Trend No Trend No Trend No Trend No Trend No Trend
trend trend trend trend trend trend trend trend

RI
Levels
LLC -3.75 -0.62 0.55 0.15 -1.17 -2.79 -1.64 -0.05 -2.32 -1.76 -2.47 -0.86 -1.03 -0.18 1.02 -0.84

SC
(0.00) (0.27) (0.71) (0.56) (0.12) (0.00) (0.05) (0.48) (0.01) (0.04) (0.01) (0.20) (0.15) (0.43) (0.85) (0.20)
*** *** ** ** ** *** ***
IPS -1.74 0.88 0.09 0.56 -0.84 -1.41 -1.17 -1.75 -1.87 -1.00 -3.41 -2.02 -2.34 -1.35 3.14 -0.07
(0.04) (0.81) (0.54) (0.71) (0.20) (0.08) (0.12) (0.04) (0.03) (0.16) (0.00) (0.02) (0.01) (0.09) (1.00) (0.47)

U
** * ** ** *** ** ** *

AN
Breitun 0.86 -0.11 0.16 -1.20 -0.14 -1.10 -2.18 0.04
g (0.81) (0.46) (0.56) (0.12) (0.44) (0.14) (0.02) (0.52)
**
Fisher 14.29 4.16 9.56 6.53 14.10 15.48 12.20 15.19 17.04 13.61 27.93 18.41 19.92 13.55 1.07 6.66

M
ADF (0.08) (0.84) (0.30) (0.59) (0.08) (0.05) (0.14) (0.06) (0.03) (0.09) (0.00) (0.02) (0.01) (0.09) (1.00) (0.57)
* * ** * ** * *** ** ** *
First

D
Differe
nce

TE
LLC -3.94 -4.57 -4.05 -3.84 -4.10 -5.60 -4.78 -6.83 -6.19 -6.78 -5.64 -5.36 -4.71 -5.91 -4.92
(0.00) -3.39 (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
*** (0.00) *** *** *** *** *** *** *** *** *** *** *** *** *** ***
EP
***
IPS -5.29 -5.54 -4.30 -3.50 -4.66 -4.37 -6.09 -4.87 -7.07 -6.58 -7.90 -7.13 -6.74 -5.89 -6.25 -5.68
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
C

*** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ***
Breitun -4.52 -5.31 -2.47 -3.71 -6.21 -2.49 -4.29 -5.22
AC

g (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)


*** *** *** *** *** *** *** ***
Fisher 41.80 41.21 33.08 25.93 37.33 36.49 48.56 36.50 56.56 48.72 63.64 53.61 54.70 45.45 50.51 42.60
ADF (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
*** *** *** *** *** *** *** *** *** *** *** *** *** *** *** ***

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Table 2c: Panel unit root test results for ECOWAS

GLOB PC DC INSQ RGDPC

PT
No Trend No Trend No Trend No Trend No Trend
trend trend trend trend trend
Levels

RI
LLC -0.33 -0.08 -0.11 1.36 -0.48 0.61 -1.48 -1.74 2.25 -0.43
(0.37) (0.47) (0.46) (0.91) (0.32) (0.73) (0.07)* (0.04)* (0.99) (0.34)
*

SC
IPS 3.02 -0.03 0.95 2.54 -0.01 1.39 0.04 -0.22 4.33 1.74
(1.00) (0.49) (0.83) (1.00) (0.50) (0.92) (0.52) (0.41) (1.00) (0.96)
Breitung 0.54 1.34 1.94 -1.41 -0.09

U
(0.70) (0.91) (0.97) (0.08)* (0.47)
Fisher 11.64 26.60 15.92 14.16 25.63 19.60 25.19 27.72 9.06 12.11

AN
ADF (1.00) (0.43) (0.94) (0.97) (0.48) (0.81) (0.51) (0.37) (1.00) (0.99)
First
Differenc

M
e
LLC -8.37 -7.09 -6.06 -5.25 -6.51 -5.69 -8.19 -7.05 -7.04 -5.97
(0.00)* (0.00)** (0.00)* (0.00)** (0.00)* (0.00)** (0.00)* (0.00)* (0.00)* (0.00)**

D
** * ** * ** * ** ** ** *
IPS -9.46 -8.00 -7.82 -6.27 -6.91 -5.82 -7.81 -6.24 -8.72 -7.75

TE
(0.00)* (0.00)** (0.00)* (0.00)** (0.00)* (0.00)** (0.00)* (0.00)* (0.00)* (0.00)**
** * ** * ** * ** ** ** *
Breitung -5.37 -4.20 -5.43 -8.12 -8.01
(0.00)** (0.00)** (0.00)** (0.00)* (0.00)**
EP
* * * ** *
Fisher 139.16 112.38 113.71 91.49 101.5 84.26 111.76 85.94 124.18 104.02
ADF (0.00)* (0.00)** (0.00)* (0.00)** (0.00)* (0.00)** (0.00)* (0.00)* (0.00)* (0.00)**
C

** * ** * ** * ** ** ** *
AC

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Table 3a: Results of panel cointegration for BRICS

Model 1a: Model 1b: Model 2a: Model 2b: Model 3a: Model 3b: Model 4a: Model 4b: Model 5a: Model 5b:
w/o trend with trend w/o trend with trend w/o trend with trend w/o trend with trend w/o trend with trend

PT
Panel v- 0.61 -0.39 -0.70 -1.49 -0.93 -1.60 0.36 -0.22 0.07 -1.31
statistic
Panel rho- 0.67 2.11 0.79 1.38 -0.60 0.12 -0.96 -0.41 -0.69 0.29

RI
statistic
Panel PP- -0.78 -2.74*** -0.21 -3.72*** -1.8** -4.25*** -3.85*** -5.90*** -3.03*** -2.96***
statistic

SC
Panel -3.80*** -5.08*** -3.21*** -8.91*** -0.61 -2.02** -1.77** -1.52* -3.55*** -3.33***
ADF-
statistic
Group 1.07 1.77 1.68 2.23 0.40 1.52 0.67 1.27 0.67 1.61

U
rho-

AN
statistic
Group PP- -0.95 -3.01*** -0.08 -0.99 -3.15*** -4.57*** -5.14*** -10.26*** -3.75*** -4.63***
statistic
Group -1.94** -2.16** -1.80** -3.64*** -2.81*** -1.35* -2.40*** -2.15** -3.42*** -2.62***

M
ADF-
statistic

D
Notes: N= 5, T=29, Model 1= DC, Model 2= PC, Model 3= MC, Model 4= TO, Model 5= VT; ***, **, * significant at 1, 5, & 10

TE
percent levels respectively. EP
C
AC

26
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Table 3b: Results of panel cointegration for MINT

Model Model Model Model Model Model Model Model Model Model

PT
1a: w/o 1b: with 2a: w/o 2b: with 3a: w/o 3b: with 4a: w/o 4b: with 5a: w/o 5b: with
trend trend trend trend trend trend trend trend trend trend
Panel v- 0.40 -0.49 0.26 -0.92 1.75** 0.39 0.79 -0.53 1.97** 0.48

RI
statistic
Panel 0.99 2.00 0.80 1.48 -1.65** -0.74 -3.22*** -2.45*** -2.27** -1.25

SC
rho-
statistic
Panel PP- -0.72 -0.21 0.39 0.71 -5.25*** -5.28*** -6.42*** -7.04*** -6.98*** -6.85***

U
statistic

AN
Panel -1.43* -1.47* -1.73** -0.98 -3.19*** -2.83*** -1.84** -1.24 -4.63*** -4.22***
ADF-
statistic

M
Group 1.15 1.97 1.75 2.27 -0.43 0.51 -2.35*** -1.47* -1.01 0.22
rho-

D
statistic
Group -0.97 -0.22 1.22 1.53 -4.55*** -3.91*** -6.61*** -6.63*** -5.85*** -4.41***

TE
PP-
statistic
Group -0.16 -1.47 -1.44* -0.27 -3.07*** -2.83** -1.93** -1.14 -5.48*** -4.03***
EP
ADF-
statistic
C

Notes: N= 5, T=29, Model 1= DC, Model 2= PC, Model 3= MC, Model 4= TO, Model 5= VT; ***, **, * significant at 1, 5, & 10
AC

percent levels respectively.

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Table 3c: Results of panel cointegration for ECOWAS

Model 1a: Model 1b: Model 2a: Model 2b:


w/o trend with w/o trend with
trend trend
Panel v-statistic 0.87 -0.85 -0.15 -1.49
Panel rho-statistic 0.53 1.81 2.22 2.91

PT
Panel PP-statistic -0.69 0.25 1.94 2.32
Panel ADF-statistic -1.16 -0.08 1.19 1.93
Group rho-statistic 1.60 2.87 2.24 2.60

RI
Group PP-statistic -2.51*** 0.25 0.03 0.15
Group ADF- -2.60*** 0.22 -2.67*** -2.81***
statistic

SC
Notes: N= 13, T=29, Model 1= DC, Model 2= PC; *** significant at 1 percent level.

U
On the other hand, the stock market variables are used as proxy for financial development in
AN
Models 3 to 5 and the results indicate that for both the BRICS and MINT panels, at least four

statistics reject the null hypothesis of no cointegration. Consequently, the findings provide
M

support for the presence of cointegration among financial development, institutions,


D

globalization and the real GDP in all the three samples.


TE

Considering the presence of cointegration among our variables, we determine the long-run

equilibrium relationship using the DOLS and FMOLS estimation methods for heterogeneous
EP

panels; these results are reported in Table 4 below. As in the cointegration results, Models 1 and

2 are banking sector variables while Models 3 to 5 are based on the stock market. With regards
C

to the main variable of our discussion, globalization, the empirical results show that it is a
AC

positive and statistically significant determinant of all the banking sector and stock market

indicators except for Model 2 (private credit) in the MINT panel, and Model 1a in the ECOWAS

panel where it appears to be positive but insignificant. This implies that the continuous openness

and assimilation of these economies among one another is beneficial to the financial sector as a

whole. More openness by this countries may likely promote best practices in the financial sector.

28
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This result is similar to that reported by Law et al. (2014) in their study of East Asian countries.

In their analysis, economic globalization is found to affect private sector credit insignificantly.

Similarly, institutional quality affects financial development

Table 4: Results of DOLS and FMOLS estimations

PT
BRICS MINT ECOWAS

RI
DOLS FMOLS DOLS FMOLS DOLS FMOLS
A B A B A B
Model 1 (SIC (lag = 1, lead (lag=3,
criterion, = 1) lead=1)

SC
max=*)
Real GDP 0.01 0.03*** 0.70*** 0.03 0.06*** 0.08***
(0.88) (0.00) (0.00) (0.58) (0.01) (0.00)
Globalization 0.79** 0.68*** 2.18*** 0.63*** 0.13 0.23***

U
(0.02) (0.00) (0.00) (0.00) (0.35) (0.00)
Institutions 0.41* 0.98*** 0.46*** 0.17*** 0.57*** 0.08***
(0.08) (0.00) (0.00) (0.00) (0.00) (0.00)
AN
Model 2 (lag=2, (SIC (lag=2,
lead=1) criterion, lead=1)
max=*)
M

Real GDP 0.75*** 0.18*** 0.44** 0.24*** 0.89*** 0.45***


(0.00) (0.00) (0.03) (0.00) (0.00) (0.00)
Globalization 0.91* 0.32*** 0.09 0.06 2.54*** 0.63***
(0.09) (0.00) (0.93) (0.38) (0.00) (0.00)
D

Institutions 0.08 0.16*** 0.45** 0.16** 0.23 1.07***


(0.82) (0.00) (0.03) (0.03) (0.32) (0.00)
TE

Model 3 (lag=1, (lag = 2, lead


lead=1) = 1)
Real GDP 1.65*** 1.40*** 0.68*** 0.87***
EP

(0.00) (0.00) (0.00) (0.00)


Globalization 4.27*** 1.96*** 3.71*** 4.15***
(0.00) (0.00) (0.01) (0.00)
Institutions 0.47 0.48*** 0.85* 0.37***
(0.36) (0.01) (0.07) (0.00)
C

Model 4 (lag=2, (Static OLS


AC

lead=1) lag & lead)


Real GDP 0.54** 0.31*** 0.33* 0.16***
(0.02) (0.00) (0.06) (0.00)
Globalization 3.70*** 3.89*** 1.61** 2.88***
(0.01) (0.00) (0.05) (0.00)
Institutions 0.44 0.26*** -0.40*** -1.47***
(0.64) (0.01) (0.01) (0.00)

Model 5 (lag=1, (Static OLS


lead=1) lag & lead)
Real GDP 1.59*** 0.11*** 0.32 0.54

29
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(0.00) (0.00) (0.24) (0.16)


Globalization 11.22*** 6.67*** 7.13*** 6.90***
(0.00) (0.00) (0.00) (0.01)
Institutions 1.74*** 2.55*** 0.21 0.94
(0.01) (0.00) (0.70) (0.25)
Notes: Values in parentheses are t-statistics. ***, **, & * are significant at 1, 5, & 10 percent levels
respectively.

PT
in a positive and statistically significant manner in all models across the panels except for

RI
Models 2a, 3a, & 4a in the BRICS; Model 5 in the MINT and Model 2a in the ECOWAS panels

where it exerts an insignificant effect. However, institutional quality significantly affects stock

SC
market turnover (Model 4) negatively in the MINT countries. This finding suggests that

improving the institutional framework in these countries is detrimental to the stock market in

U
these group of countries. Specifically, enhanced bureaucratic quality, property rights and the
AN
control of corruption impedes market turnover. Besides, this result is similar to that obtained by
M

Chinn and Ito (2006) where the institutional variable negatively affects stock market turnover in

a group of selected countries; interestingly, this group includes all the MINT countries.
D

As expected, with the exception of Model 1a in the BRICS panel, and Models 1b & 5 in the
TE

MINT panel, real GDP is found to be significantly positive.

Tables 5a and b reports the results from the MG and PMG estimation techniques. For this
EP

analysis, we combine the BRICS and MINT economic blocs as one10. The Tables present the

error correction coefficients, the long run coefficients, and the Hausman tests. The optimal lag
C

was selected based on the Akaike Information Criteria1112.


AC

10 Due to the limited number of countries in these blocs and considering the similarities among them which includes
but not limited to a large population, a fast growing economy, and increasing level of globalization, we combine
them in order to give room for carrying out the MG and PMG estimations.
11 This is considered more suitable for samples below 60 cross-sectional observations. See Liew (2004) for details.
12 In each country, we subject it to a maximum of 2 lags for ECOWAS and 1 lag for the BRICS & MINT panels
respectively, and we allowed it to vary between countries. Homogeneity is then imposed using these AIC-
determined lag orders. See Table in Appendix.

30
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The Tables present the results on specification tests and estimations of long and short run

parameters linking globalization, institutional quality and financial sector development using the

MG and PMG estimators. Our emphasis is on the results obtained using the PMG estimator,

taking into account its advantage over other panel error correction estimators13. The coefficient

PT
on the ECT should be significantly negative for the presence of long run relationship. As

RI
displayed in the Tables (5a & b), the coefficient estimates on the ECT are negatively significant

and lies within the

SC
Table 5a: MG and PMG Estimation Results for BRICS & MINT

MG PMG Hausman Test

U
Model 1
Long run Coefficient
AN
Globalization 0.06 1.05** 2.31
(1.33) (0.45) (0.52)
Institutions -0.27 0.73**
(0.38) (0.30)
0.12 0.27***
M

RGDP
(0.23) (0.09)
Error Correction -0.36*** -0.18***
Phi (0.00) (0.00)
D

Short run Coefficient


Globalization 0.17 0.57*
(0.35) (0.32)
TE

Institutions -0.09 0.07


(0.10) (0.15)
RGDP -0.31*** -0.34***
(0.10) (0.11)
EP

Size (N x T) 261 261

Model 2
Long run Coefficient
C

Globalization -0.44 0.46*** 6.06


(1.15) (0.09) (0.15
AC

Institutions 0.00 0.02


(0.47) (0.12)
RGDP 0.56** 0.09***
(0.27) (0.03)
Error Correction -0.38*** -0.21***
Phi (0.00) (0.00)
Short run Coefficient
Globalization 1.01*** 0.94**

13 When long run homogeneity restriction is imposed and the short run adjustments are presumed to differ across
countries, the PMG is consistent and efficient. See Kim et al. (2010).

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ACCEPTED MANUSCRIPT

(0.34) (0.44)
Institutions 0.05 0.06
(0.12) (0.13)
RGDP -0.04 -0.07
(0.12) (0.11)
Size (N x T) 261 261

Model 3

PT
Long run Coefficient
Globalization 5.61*** 1.03*** 11.27*
(1.60) (0.33) (0.10)
Institutions 0.55 0.36

RI
(0.58) (0.22)
RGDP 0.96*** 1.35***
(0.12) (0.09)

SC
Error Correction -0.86*** -0.59***
Phi (0.00) (0.00)
Short run Coefficient
Globalization 6.17*** 2.63***
(1.12) (0.96)

U
Institutions -0.18 0.29
(0.46) (0.40)
AN
RGDP 1.33*** 1.20***
(0.40) (0.40)
Size (N x T) 261 261
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Model 4
Long run Coefficient
Globalization 1.88 0.89** 0.40
(1.81) (0.39) (0.94)
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Institutions 0.24 -0.11


(0.44) (0.12)
TE

RGDP 0.12 0.14**


(0.21) (0.07)
Error Correction -1.72*** -0.75***
Phi (0.00) (0.00)
Short run Coefficient
EP

Globalization 0.99 -0.91


(3.07) (1.57)
Institutions -0.02 -0.33
(0.65) (0.71)
C

RGDP -0.17 -0.48


(0.21) (0.44)
AC

Size (N x T) 261 261

Model 5
Long run Coefficient
Globalization 8.51*** 2.90*** 5.58
(2.73) (0.77) (0.13)
Institutions 1.52 0.08
(1.91) (0.31)
RGDP -0.09 0.20
(0.14) (0.15)
Error Correction -0.50*** -0.38***

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Phi (0.00) (0.00)


Short run Coefficient
Globalization 5.72*** 3.38*
(2.30) (1.32)
Institutions -0.21 -0.50
(0.47) (0.41)
RGDP 0.24 0.51***
(0.17) (0.14)

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Size (N x T) 261 261
Note: Figures in parentheses are standard errors. ***, **, * significant at 1, 5, and 10 percent
respectively. The lag order is chosen using AIC criterion

RI
U SC
Table 5b: MG and PMG Estimation Results for ECOWAS
AN
MG PMG Hausman Test
Model 1
Long run Coefficient
M

Globalization 1.27** 0.66 3.72


(0.03) (0.16) (0.29)
Institutions -0.20 0.10
(0.85) (0.73)
D

RGDP 0.09 0.23*


(0.69) (0.07)
TE

Error Correction -0.24*** -0.16***


Phi (0.00) (0.00)
Short run Coefficient
Globalization -0.43 -0.04
(0.29) (0.89)
EP

Institutions 0.11 -0.17


(0.64) (0.55)
RGDP -0.14 -0.21
(0.29) (0.19)
C

Size (N x T) 377 377


AC

Model 2
Long run Coefficient
Globalization 1.44 1.20***
(0.44) (0.00) 27.70
(0.99)
Institutions 0.43 1.20***
(0.73) (0.00)
RGDP -0.16 0.35***
(0.24) (0.00)
Error Correction -0.24*** -0.17***
Phi (0.00) (0.00)

33
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Short run Coefficient


Globalization 0.12 0.01
(0.69) (0.97)
Institutions -0.30 -0.22
(0.41) (0.48)
RGDP -0.23 -0.16
(0.15) (0.24)
Size (N x T) 377 377

PT
Note: Figures in parentheses are standard errors. ***, **, * significant at 1, 5, and 10 percent
respectively. The lag order is chosen using AIC criterion

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dynamically stable range for MG and PMG estimators. This demonstrates that there is average

SC
return to a non-spurious long run relationship and hence the residuals are stationary. This means

that our data series are cointegrated. Besides, the lower error correction coefficients (*l) suggests

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slower adjustment. But, pooling results in a much smaller speed of adjustment and proportionate
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standard error. In the long run analysis for both panels, the PMG estimates are much more

significant statistically than the MG estimates.


M

In general, with the exception of Model 3 in the BRICS and MINT panel, the joint Hausman

tests fail to reject probability of the long run parameters in all panel data estimations. This
D

indicates that a restriction can be imposed on the long run coefficients to be similar except for
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Model 3 in the BRICS and MINT where it appears to be heterogeneous. Therefore, globalization

and institutional quality might have a homogeneous long run effects on financial development in
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the studied countries with a long run heterogeneous impact on stock market capitalization in the
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BRICS and MINT countries.


AC

For the ECOWAS panel, the PMG estimates of the long run coefficient of globalization on

financial development are 0.66 and 1.20 with a p-value of 0.16 and 0.00 for Models 1 and 2

respectively. It implies that greater level of globalization, by either increasing trade or financial

openness; or by weakening the incentives of incumbents dramatically increases banking sector

credit to the private sector in the long run but not as statistically important to the domestic credit

34
ACCEPTED MANUSCRIPT

(although it is positive). Better institutions also tend to dramatically increase private sector credit

but not significant for domestic credit. These results support the propositions of Mishkin (2009)

and Rajan & Zingales (2003).

The short run coefficients however presents a different picture. As stated, short run coefficients

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are allowed to vary across countries so that for each coefficient, we do not have a single pooled

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estimate. We can, notwithstanding, still examine the average short run impact by taking into

consideration the mean of the relative coefficient across panel.

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As displayed in Table 5 the standard errors of the globalization and institutional quality

coefficients are reduced by imposing the long run homogeneity restriction. Additionally, since

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the short run dynamic specification is allowed to vary across panel in the PMG approach, it
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further confirms that the PMG model is more consistent than the MG approach in this analysis.

The short run effects of globalization and institutional quality on the alternative indicators of
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financial development are positive and negative (respectively) albeit insignificant. A possible
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explanation for this insignificant relationships is that greater competition and price shock due to
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increasing level of openness to trade and the change in institutional setting may result in higher

level of uncertainty and reduced investments, this will slow the development of the financial
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sector.

On the other hand, Table 5a reports the results for the BRICS and MINT panel. Four out of the
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five Models prefer the PMG estimates (following the Hausman-type test results). The PMG
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estimates for the long run coefficient of globalization on finance are 1.50, 0.46, 0.89 and 2.90

with standard error of 0.45, 0.09, 0.39 and 0.77 while the coefficients of institutional quality on

finance are 0.73, 0.02, -0.11, and 0.08 with standard error of 0.30, 0.12, 0.12, and 0.31 for

Models 1, 2, 4 and 5 respectively. The globalization coefficients are all statistically significant

35
ACCEPTED MANUSCRIPT

implying that greater globalization drives financial sector development in these countries. This

does not contradict the propositions by Mishkin (2009) and Rajan & Zingales (2003).

However, the institutional quality coefficient is only significant for Model 1. A possible reason

for this is that institutional quality has not significantly changed over the years in these countries.

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Furthermore, the result also indicates that institutional quality affects stock market turnover

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negatively, although not significant. This result is in a way similar to that obtained in the

FMOLS and DOLS estimators. In the FMOLS and DOLS estimations for the BRICS countries,

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institutional quality was seen to be positive and significant while in the MINT countries, it

appears negative and significant (Table 5). Considering that we combined these blocs as one, the

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PMG estimate implies that the effect of institutional quality is larger in the MINT countries. In
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other words, the effect is large enough to offset any impact from the BRICS countries.

While for market capitalization (Model 3), our analyses show that the MG estimates are more
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consistent and preferred over the PMG. This suggests that stock market capitalization vary across
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these countries in long run, therefore we cannot impose homogeneity restriction.


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The short run results for this panel shows a similar coefficients except for Models 1 and 2 where

GDP is negatively significant and Model 4 where it is negative but insignificant. Other variables
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that show different coefficients from the long run results are globalization in Model 4 and

institutional quality in Model 5, although both appear to be insignificant. Other variables across
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the analyses show similar coefficient with difference in significance.


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Comparing the short and long run results, the globalization, institutions-finance relationships is

conditional on whether the trend is temporary or permanent. Furthermore, our results of presence

of positive long run effects and some negative short run effects (especially in the ECOWAS

panel) suggests that regardless of the fact that these variables hinder financial development in the

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ACCEPTED MANUSCRIPT

short run, ultimately, the long run effect of the cost and risks aspects of globalization and

institutions lead to higher financial development.

Results of the Granger causality tests based on the panel VECM are reported in Tables 6a, b & c.

The order of the variables is financial development, globalization, institutional quality, and real

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GDP per capita. The estimation is repeatedly conducted using five Models (except for ECOWAS

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where the Models are two). Models 1 and 2 used the banking sector variables as proxy for

financial development while 3 to 5 the stock market data as proxy. In the VAR regression, we set

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the optimum lag at 3 and used the minimum value of Akaike and Schwarz Information Criteria

to select the lag length. For most of our indicators in all the 3 panels, the Wooldridge (2002) F-

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statistics for the test of serial correlation rejects the null hypothesis of presence of serial
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correlation, hence, the VECM model is well specified and conclusion can be drawn from the

results.
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Looking at the results from the BRICS panel, Model 1 shows only a unidirectional causality
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running from GDP to financial development. This is in line with the arguments of the demand-
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following hypothesis14. Model 2 indicates evidence of a unidirectional causality running from

globalization to institutional quality, while institutional quality granger cause credit to the private
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sector. This result confirms Mishkins (2009) theory which highlights that institutional reforms

can be improved thereby encouraging financial development through globalization; although the
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finding fails to support the Rajan & Zingales (2003) hypothesis. In their study, Rajan & Zingales
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(2003) point out that simultaneously liberalizing trade and capital accounts improves financial

sector. Our result for this model does not show any form of causality from globalization to

financial development. However, Models 4 and 5 provide evidence of a unidirectional causal

14 This hypothesis states that economic growth leads to financial development. See Quartey & Prah (2008).

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ACCEPTED MANUSCRIPT

effect running from globalization to financial development. This tends to support the arguments

of Rajan & Zingales (2003) and is similar to the banking sector variable (Model 2) only that

globalization does not pass through the institutions to affect the financial sector. Both results

(from the banking sector and stock market proxies) are similar to that reported in the study of

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Law et al. (2014) in their study of East Asian countries.

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The results of the MINT panel is reported in Table 5b Model 1 indicates a unidirectional causal

effect running from globalization to financial development. This finding is in line with the Rajan

SC
& Zingales (2003) hypothesis which states that globalization causes financial development.

Similar to the BRICS panel, Model 2 shows a unidirectional causality from globalization to

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institutions, and institutions to financial development, hence, confirming Mishkins (2009)
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hypothesis. It further shows a unidirectional causality running from financial development to

globalization.
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Table 6a: Results of Granger causality based on panel VECM Estimation for BRICS
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FSD GLOB LINSQ RGDPC ECTit-1 Diagnostic


tests: Serial
TE

Correlation
2 statistics Coefficients F-Statistics
(p-value) (t-statistics) (p-value)
Model 1
EP

FSD - 2.64 0.11 3.44 -0.00 5.16


(0.27) (0.95) (0.18) (-0.06) (0.00)
GLOB 0.76 - 1.25 0.44 -0.06*** 2.07
(0.69) (0.53) (0.80) (-3.34) (0.03)
C

LINSQ 0.67 0.36 - 3.06 -0.10*** 2.99


(0.72) (0.83) (0.22) (-3.57) (0.00)
RGDPC 5.57* 0.75 4.01 - -0.00 2.26
AC

(0.06) (0.69) (0.13) (-0.99) (0.02)

Model 2
FSD - 1.56 0.06* 3.84 0.00 6.76
(0.46) (0.09) (0.15) (0.08) (0.00)
GLOB 0.94 - 1.25 0.49 -0.06*** 2.13
(0.62) (0.54) (0.78) (-3.39) (0.03)
LINSQ 0.87 0.30* - 3.11 -0.10*** 3.04
(0.65) (0.06) (0.21) (-3.58) (0.00)
RGDPC 11.11*** 0.64 4.27 - -0.00 2.91
(0.00) (0.73) (0.12) (-0.90) (0.00)

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Model 3
FSD - 3.79 3.50 1.98 -0.21*** 3.20
(0.15) (0.17) (0.37) (-3.01) (0.00)
GLOB 0.51 - 0.16 0.00 -0.06*** 3.13
(0.78) (0.92) (1.00) (-3.97) (0.00)
LINSQ 4.11 0.42 - 4.19 -0.02 1.37
(0.13) (0.81) (0.12) (-0.93) (0.22)

PT
RGDPC 10.58*** 5.94** 0.13 - -0.08** 3.19
(0.01) (0.05) (0.94) (-2.36) (0.00)

Model 4

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FSD - 6.86** 3.08 10.63*** -0.24*** 5.10
(0.03) (0.21) (0.01) (-5.32) (0.00)
GLOB 1.53 - 0.12 0.00 0.01 1.72

SC
(0.46) (0.94) (1.00) (1.60) (0.10)
LINSQ 5.56* 0.15 - 4.91* 0.00 1.47
(0.06) (0.93) (0.09) (0.16) (0.18)
RGDPC 2.27 1.11 0.34 - 0.00* 1.19
(0.32) (0.57) (0.85) (1.77) (0.32)

Model 5
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AN
FSD - 11.37*** 10.23*** 4.96* -0.20*** 5.65
(0.00) (0.01) (0.08) (-4.55) (0.00)
GLOB 0.60 - 0.14 0.05 -0.00*** 2.06
(0.74) (0.93) (0.94) (-2.73) (0.05)
M

LINSQ 0.29 0.05 - 4.01 -0.01 0.88


(0.86) (0.97) (0.14) (-0.37) (0.55)
RGDPC 0.75 1.79 0.55 - -0.01* 0.91
(0.69) (0.41) (0.76) (-1.67) (0.52)
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Note: ***, **, * significant at 1, 5 and 10 percent respectively


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Table 6b: Results of Granger causality based on panel VECM Estimation for MINT
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FSD GLOB LINSQ RGDPC ECTit-1 Diagnostic


tests: Serial
Correlation
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2 statistics Coefficients F-Statistics


(p-value) (t-statistics) (p-value)
AC

Model 1
FSD - 4.68* 3.00 0.51 -0.10*** 1.91
(0.10) (0.22) (0.78) (-3.22) (0.06)
GLOB 0.53 - 0.16 6.96** -0.08*** 2.45
(0.77) (0.94) (0.03) (-3.88) (0.01)
LINSQ 2.41 1.74 - 0.19 0.02 3.19
(0.30) (0.42) (0.91) (1.01) (0.00)
RGDPC 1.67 0.04 1.18 - 0.01 0.75
(0.43) (0.98) (0.56) (1.23) (0.67)

Model 2

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ACCEPTED MANUSCRIPT

FSD - 1.05 0.55* 14.48*** -0.02 2.69


(0.59) (0.06) (0.00) (-1.02) (0.01)
GLOB 4.90* - 1.01 5.49* -0.12*** 4.54
(0.09) (0.60) (0.06) (-5.28) (0.00)
LINSQ 1.66 2.10** - 0.77 0.03 3.21
(0.44) (0.05) (0.68) (1.27) (0.00)
RGDPC 0.50 0.03 0.75 - 0.00 0.62
(0.78) (0.98) (0.69) (1.10) (0.78)

PT
Model 3
FSD - 1.18 0.87 0.03 -0.18** 1.55
(0.55) (0.65) (0.99) (-2.19) (0.14)

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GLOB 16.27*** - 0.40 0.32 -0.01 3.40
(0.00) (0.82) (0.85) (-1.45) (0.00)
LINSQ 34.84*** 1.54 - 16.03*** -0.25*** 10.08

SC
(0.00) (0.46) (0.00) (-5.03) (0.00)
RGDPC 14.38*** 0.16 3.37 - -0.01 2.26
(0.00) (0.93) (0.19) (-0.24) (0.03)

Model 4

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FSD - 10.18*** 2.00 6.08** -0.08*** 4.19
(0.01) (0.37) (0.05) (-3.42) (0.00)
AN
GLOB 7.81** - 0.86 5.83** -0.05** 3.00
(0.02) (0.65) (0.05) (-2.50) (0.00)
LINSQ 1.80 4.58* - 8.01** -0.16*** 8.83
(0.41) (0.10) (0.02) (-6.11) (0.00)
M

RGDPC 2.84 0.06 0.86 - -0.01 2.26


(0.24) (0.97) (0.65) (-0.24) (0.03)

Model 5
D

FSD - 4.26 0.60* 6.83** -0.03** 2.67


(0.12) (0.07) (0.03) (-2.46) (0.01)
TE

GLOB 35.21*** - 1.13 6.22** -0.00* 5.71


(0.00) (0.57) (0.05) (-1.85) (0.00)
LINSQ 16.89*** 5.84** - 9.86*** -0.17*** 8.05
(0.00) (0.05) (0.01) (-3.62) (0.00)
RGDPC 3.49 0.60 0.16 - 0.01** 1.27
EP

(0.17) (0.74) (0.92) (2.11) (0.27)

Note: ***, **, * significant at 1, 5 and 10 percent respectively


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Table 6c: Results of Granger causality based on panel VECM Estimation for ECOWAS
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FSD GLOB LINSQ RGDPC ECTit-1 Diagnostic


tests: Serial
Correlation
2 statistics Coefficients F-Statistics
(p-value) (t-statistics) (p-value)
Model 1
FSD - 0.29 0.90 0.57 -0.12*** 3.50
(0.86) (0.64) (0.75) (-5.15) (0.00)
GLOB 1.51 - 1.08 2.32 0.00 2.09
(0.47) (0.58) (0.31) (0.05) (0.03)
LINSQ 0.77 2.32 - 1.69 -0.00 1.35

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(0.68) (0.31) (0.43) (-0.90) (0.21)


RGDPC 0.24 3.57 3.68 - 0.00 2.76
(0.89) (0.17) (0.16) (2.41) (0.00)

Model 2
FSD - 0.24 0.58 5.38* -0.04*** 2.65
(0.89) (0.75) (0.07) (-2.98) (0.01)
GLOB 10.40*** - 0.51 1.66 -0.02** 2.96

PT
(0.01) (0.78) (0.44) (-2.00) (0.00)
LINSQ 2.25 3.62 - 0.96 -0.04*** 4.13
(0.33) (0.16) (0.62) (-3.41) (0.00)
RGDPC 2.01 1.54 0.55 - 0.00*** 2.56

RI
(0.37) (0.46) (0.76) (2.82) (0.01)

Note: ***, **, * significant at 1, 5 and 10 percent respectively

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Model 3 for this panel shows a unidirectional causality from financial development to

globalization, institutions, and real GDP per capita. The causality from financial development to

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institutions confirms an aspect of the Mishkin (2009) hypothesis which states that liberalizing the
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market to foreign financial firms enhance the operation of the domestic market (or financial
M

development) by promoting reforms to the system. Foreign financial firms bring into the market

best practices and knowledge, such as those designed to screen good from bad credit risks and
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to monitor borrower activities to reduce the amount of risks they take (Mishkin, 2009, p.166).
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Foreign institutions may, owing to their experience with more advanced system influence the

constitution of reform policies that will improve the financial system to function more
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successfully. While the causality from financial development to GDP provides support to the

advocates of the supply-leading hypothesis15.


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Model 4 indicates a bi-directional causality running between globalization and financial


AC

development; and a unidirectional causality from globalization to institutions. This findings are

similar to that in our BRICS panel where globalization enhance financial development through

15 They argue that in order to achieve economic growth, a country must strive to create financial institutions and
instruments, as a result finance induce and causality runs from financial development to economic growth. See
Quartey & Prah (2008).

41
ACCEPTED MANUSCRIPT

the institutions in the banking variable, and for the stock market, globalization causes financial

development without necessarily passing through the institutional channel.

Model 5 on the other hand is similar to Model 2 where there exists causality running from

globalization to institutions, and institutions to financial development, although causality

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between institutions and financial development is bi-directional. Furthermore, there exists

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unidirectional causal effect from financial development to globalization.

Table 6c reports the results from the ECOWAS sample group. With the exception of a granger

SC
causality from financial development to globalization in Model 2, there appears to be no other

causation among any of the variables.

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To sum up, with the exception of the MINT countries (where institutional improvement impairs
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stock market turnover), the results produced by the other subsamples are coherent: improved

institutional quality and increased globalization lends to greater financial development in the
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long run. Furthermore, the Granger causality results are also logical, confirming the theories
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adopted for the study except for the ECOWAS panel. In general, we find that globalization and
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institutions are positive and extremely important to financial sector development for these blocs

in the long run.


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7 CONCLUDING REMARKS
C

Considering its significance in influencing economic growth, a large number of studies have
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investigated the variables that determine financial market operations. Recently, several

researchers argue that globalization helps shape financial market operations, while others believe

institutions play a vital role. However, the exact direction of causality is yet unclear in some

markets.

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This study investigates the role of globalization and institutions in determining financial

development in 3 economic blocs from 1984 to 2013 using the Pedroni (1999, 2004) panel

cointegration and the Granger causality tests. The Pedroni (1999, 2004) panel cointegration test

provides evidence of a long run equilibrium among our data set. For all the panels, the estimates

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of the long run cointegration relationship indicates that both the institutional quality and

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globalization variables are significant factors that influence the long run behavior of the financial

sector. Nevertheless, the effect of globalization of financial development is more significant on

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the stock market than the banking sector in the BRICS and MINT countries. This long run

cointegration relationship is confirmed using alternative estimation method in form of the MG

and PMG.
U
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For the panel VECM estimation, the result confirms Mishkins (2009) hypothesis, mainly in the

banking sector where globalization has a causal effect on institutions, and in turn, institutions
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Granger cause financial development. For the stock market, globalization Granger cause the
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development of the stock market without necessarily passing through the institutional channel.
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The results from this study holds important implication for policy makers in these countries.

Since the result indicates that globalization can directly and indirectly influence the financial
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sector through the institutional channel, it is important to plan and execute a robust development

blueprint that improves globalization since liberalizing the market contributes to better
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institutional quality, and the financial market is likely to develop with improved institutions.
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Furthermore, due to the possible significant domestic and international effects liberalization

could have, it needs to be well planned and managed. It would be more beneficial for policy

makers in these blocs to liberalize the capital account sector when the regulatory environment

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ACCEPTED MANUSCRIPT

and the financial market have attained a threshold level in order to absorb capital inflows16.

Where policy reforms are implemented without attaining the necessary institutional threshold

level, liberalization may not work successfully17. Thus, prior to embarking on globalization

policy by removing all restrictions to trade and capital accounts, some necessary conditions must

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be met with regards to adequate level of financial market deepening and institutional quality. For

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globalization to further enhance institutions and the financial market, especially in the BRICS

and MINT countries, these prerequisites must be fulfilled.

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Even though we provide a comprehensive result based on the Granger causality test on a panel

data framework, which according to Granger (2003) notably improves the efficiency of the

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Granger causality test because the collinearity among the independent variables decreases and
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the degree of freedom increases. Nevertheless, Law, Lim, and Ismail (2013) point to the

possibility of two inferential problems arising in the panel causality test both dealing with
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possible heterogeneity of the individual cross-sections. The first according to them is as a result
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of distinct intercept which can be tackled adopting a fixed effect approach. The second issue is
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the more problematic type of heterogeneity which they believe requires a more complex

analytical response.
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Owing that our study used the Granger causality test, the results are susceptible to these issues.

Moreover, according to Pesaran (2006) where cross-sectional dependency exists and is ignored,
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substantial biases and size distortions will occur. We ignored the existence of cross-sectional
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dependency, hence, future researchers in this area can look into using more advanced Granger

causality technique which solve the above stated problems and an approach that accounts for

cross-sectional dependence, an example is the seemingly unrelated regressions (SUR) approach.

16 See Ito (2006) for an excellent discussion on institutional threshold level.


17 In his study, Rodrik (1997) contend that while globalization is a positive move, it can only be successful if
suitable measures are in place to mitigate its negative effects.

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Dreher, A., Gaston, N., & Martens, P. (2008). Measuring Globalisation: Gauging its

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Journal of Econometrics, 115(1), 5374. http://doi.org/10.1016/S0304-4076(03)00092-7

55
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Ito, H. (2006). Financial development and financial liberalization in Asia: Thresholds,

institutions and the sequence of liberalization. The North American Journal of Economics

and Finance, 17(3), 303327. http://doi.org/10.1016/j.najef.2006.06.008

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Kao, C., & Chiang, M.-H. (1999). On the Estimation and Inference of A Cointegrated

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SC
Kim, D.-H., Lin, S.-C., & Suen, Y.-B. (2010). Dynamic effects of trade openness on financial

development. Economic Modelling, 27(1), 254261.

U
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AN
King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. The

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M

Kjosevski, J. (2012). The Determinants of Life Insurance Demand in Central and Southeastern
D

Europe. International Journal of Economics and Finance, 4(3), 237247.


TE

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Law, S. H., Azman-Saini, W. N. W., & Tan, H. B. (2014). Economic Globalization and Financial
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Markets Finance and Trade, 50(February 2015), 210225. http://doi.org/10.2753/REE1540-

496X500112

Law, S. H., & Habibullah, M. S. (2009). The determinants of financial development: Institutions,

openness and financial liberalisation. South African Journal of Economics, 77(1), 4558.

56
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http://doi.org/10.1111/j.1813-6982.2009.01201.x

Law, S. H., Lim, T. C., & Ismail, N. W. (2013). Institutions and economic development: A

Granger causality analysis of panel data evidence. Economic Systems, 37(4), 610624.

http://doi.org/10.1016/j.ecosys.2013.05.005

PT
Le, T.-H., Kim, J., & Lee, M. (2016). Institutional Quality, Trade Openness, and Financial Sector

RI
Development in Asia: An Empirical Investigation. Emerging Markets Finance and Trade,

52(5), 10471059. http://doi.org/10.1080/1540496X.2015.1103138

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Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: Asymptotic and finite-

sample properties. Journal of Econometrics, 108(1), 124. http://doi.org/10.1016/S0304-

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U
AN
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M

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Mishkin, F. S. (2009). Globalization and financial development. Journal of Development

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Economics, 89(2), 164169. http://doi.org/10.1016/j.jdeveco.2007.11.004

Mookerjee, R., & Kalipioni, P. (2010). Availability of financial services and income inequality:

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Mundaca, B. G. (2009). Remittances, financial market development, and economic growth: The

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303. http://doi.org/10.1111/j.1467-9361.2008.00487.x

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regressors. Oxford Bulletin of Economics and Statistics, 61(S1), 653670.

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AN
Pedroni, P. (2000). Fully modified OLS for heterogenous cointegrated panels. In B. H. Baltagi,

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Press. http://doi.org/doi:10.1016/S0731-9053(00)15004-2
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Pedroni, P. (2004). Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled
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20(03), 597625. http://doi.org/10.1017/S0266466604203073


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