Causal impact of financial structure on capital accumulation: An empirical approach

Daniel Kabelo Moalusi, Fordham University


In this paper I set out to assess whether financial structure has any causal impact on capital accumulation in the Granger causality sense. I estimated different Granger causality equations for different classifications of countries. I saw that in financially developed economies, financial structure does appear to have a causal impact on capital accumulation. On the other hand for financially underdeveloped I obtained similar results with all the financial structure measures except for the efficiency measure. This is not a surprising result since most of the financial markets in these economies are at their infant stages and are still highly illiquid and inefficient. The measure of efficiency is constructed using total value traded ratio, which reflects liquidity of stock markets. In terms of whether capital accumulation is faster in bank based or financial market based economies, there is no concrete evidence to support this idea. Testing for differences in the mean between bank based and financial market based nations; I fail to reject the null hypothesis of no difference in the mean for both financially developed and financially underdeveloped nations, excluding the OECD nations thus supporting the financial services view. When testing for differences in the means, for Asian nations vs. Latin American Nations, I find that Asian nations as a group were growing faster over the period 1960–2003. Classifying the nations in each region by structure, I find that for bank based economies, Asian countries were growing faster. However for financial market based economies, I fail to reject the null hypothesis that there is no difference in means. This implies that for the financial market based economies, average capital accumulation was relatively the same between Asia and Latin America over 1960-2003.

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Recommended Citation

Moalusi, Daniel Kabelo, "Causal impact of financial structure on capital accumulation: An empirical approach" (2007). ETD Collection for Fordham University. AAI3271270.