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J. Risk Financial Manag. 2019, 12(1), 35; https://doi.org/10.3390/jrfm12010035

The Importance of the Financial Derivatives Markets to Economic Development in the World’s Four Major Economies

1
Business and Economics Research Group, Ho Chi Minh City Open University, Ho Chi Minh City 722000, Vietnam
2
International Economics Faculty, Banking University Ho Chi Minh City, Ho Chi Minh City 700000, Vietnam
*
Author to whom correspondence should be addressed.
Received: 28 December 2018 / Revised: 29 January 2019 / Accepted: 1 February 2019 / Published: 14 February 2019
(This article belongs to the Special Issue Applied Econometrics)
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Abstract

Over the past three decades, China and India have attained economic power close to that of Japan and the U.S. During this period, the importance of the derivatives market within the financial market has been widely recognized. However, little supporting evidence is available on its economic effects. This paper investigates the dynamic relationship between the derivatives markets and economic development in these four large economies, which we consider together as the CIJU (China, India, Japan, and the U.S.) group. We use a Granger-causality test in the framework of a vector error correction model (VECM) to examine this causal and dynamic relation with data for the period 1998Q1 to 2017Q4. Derivative markets are found to positively contribute to economic development in the short run in the U.S., Japan, and India, but the effect disappears in the long run. In China, the derivatives market has a negative effect on economic development in the short run. However, in the long run, we observe a positive effect from the derivatives market on economic development based on two long-run estimation techniques, namely, dynamic ordinary least squares and fully modified ordinary least squares. Also, the development of derivative markets causes growth volatility in India, both in the short run and long run. View Full-Text
Keywords: derivatives market; economic development; Granger-causality tests; vector error correction model (VECM); DOLS; FMOLS derivatives market; economic development; Granger-causality tests; vector error correction model (VECM); DOLS; FMOLS
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
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Vo, D.H.; Huynh, S.V.; Vo, A.T.; Ha, D. .-T. The Importance of the Financial Derivatives Markets to Economic Development in the World’s Four Major Economies. J. Risk Financial Manag. 2019, 12, 35.

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