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Economies
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The Nexus of Financial Development and Economic Growth: New Evidence...
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The Nexus of Financial Development and Economic Growth: New Evidence in a Changing Global Economy

A special issue of Economies (ISSN 2227-7099).

Deadline for manuscript submissions: 30 November 2026 | Viewed by 6204

Special Issue Editor

Dr. Antonios Adamopoulos

E-Mail Website
Guest Editor
Department of Organization and Business Administration, University of Western Macedonia, 51 100 Grevena, Greece
Interests: applied econometrics; economic development; banking and financial management; economics of energy; tourism economics; economics of education; environmental education

Special Issue Information

Dear Colleagues,

The relationship between financial development and economic growth has been a central topic in modern economic theory and empirical research since a developed financial system can promote economic growth by facilitating savings, efficiently allocating resources, and supporting investment. The influential work of King and Levine (1993), using cross-country empirical data, confirmed that financial sector development is positively correlated with economic growth. Subsequent studies have applied more advanced econometric techniques to address endogeneity issues. Additionally, Granger causality tests are frequently employed to determine the direction of the causal relationship. In conclusion, financial development appears to be a key driver of economic growth, particularly when supported by strong institutions, transparent regulation, and political stability.

This Special Issue theoretically and empirically explores the relationship between financial development and economic growth. Research questions arise to examine the nature of this relationship: Is it unidirectional or bidirectional? Furthermore, this relationship may differ significantly between developed and developing countries, due to varying institutional, political, and economic characteristics. Finally, exploring the effects of the global financial crisis or the COVID-19 crisis on this relationship offers a contemporary dimension to the analysis, potentially revealing new insights into policies that can enhance the role of the financial sector in economic development.

Reference

King, R.G. and Levine, R. (1993) Finance and Growth: Schumpeter Might Be Right. The Quarterly Journal of Economics, 108, 717-737. https://doi.org/10.2307/2118406

Dr. Antonios Adamopoulos
Guest Editor

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 250 words) can be sent to the Editorial Office for assessment.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a double-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Economies is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1800 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • financial development
  • economic growth
  • financial institutions
  • panel data analysis
  • Granger causality
  • robustnes tests

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Published Papers (4 papers)

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Research

13 pages, 254 KB  
Article
Examining the Nexus Between Fiscal Decentralization, Green Finance, and the Digital Economy: A Cross-Country Panel Study
by Elena Rusu Cigu
Economies 2026, 14(4), 106; https://doi.org/10.3390/economies14040106 - 25 Mar 2026
Viewed by 684
Abstract
This paper explores the relationship between fiscal decentralization, green finance, and the digital economy in driving sustainable development, using a balanced cross-country panel dataset spanning 2014–2022, for 29 European countries. Employing dynamic panel estimation techniques, including system generalized method of moments (GMM), the [...] Read more.
This paper explores the relationship between fiscal decentralization, green finance, and the digital economy in driving sustainable development, using a balanced cross-country panel dataset spanning 2014–2022, for 29 European countries. Employing dynamic panel estimation techniques, including system generalized method of moments (GMM), the research investigates how fiscal decentralization, green finance, and the digital economy (each of them individually and through interaction mechanisms), dynamically shape sustainable development performance in the presence of endogeneity and temporal persistence. The findings reveal strong inertia in sustainable development, which depends on its previous level. Fiscal decentralization has complex effects: revenue autonomy supports sustainability, whereas expenditure autonomy may undermine it, suggesting differences in how resources are used efficiently at the local versus central levels. Digitalization acts as a catalyst, boosting the effectiveness of environmental taxes and enhancing local spending outcomes. However, if fiscal administrations are not digitally integrated, digitalization may weaken the benefits of decentralized revenues. This study advances the literature by integrating fiscal, financial, and digital views, providing new insights into policy coordination. Full article
(This article belongs to the Special Issue The Nexus of Financial Development and Economic Growth: New Evidence in a Changing Global Economy)
24 pages, 2244 KB  
Article
Quantifying the Economic Costs of Financial Corruption in Pakistan: An Integrated Econometric and Machine Learning Approach
by Abdelrahman Mohamed Mohamed Saeed, Muhammad Ali Husnain and Muhammad Ali
Economies 2026, 14(3), 82; https://doi.org/10.3390/economies14030082 - 5 Mar 2026
Cited by 1 | Viewed by 984
Abstract
This study investigates the macroeconomic impact of financial corruption and institutional weakness on Pakistan’s economy from 1996 to 2023, addressing a critical research gap in quantifying the simultaneous effects of shadow economy operations and poor governance on economic growth. Grounded in institutional economics [...] Read more.
This study investigates the macroeconomic impact of financial corruption and institutional weakness on Pakistan’s economy from 1996 to 2023, addressing a critical research gap in quantifying the simultaneous effects of shadow economy operations and poor governance on economic growth. Grounded in institutional economics theory, the research tested hypotheses that weak control of corruption and a large shadow economy negatively affect GDP growth, while also examining the roles of tax revenue, inflation, trade openness, and foreign direct investment. Utilizing a dual-methodological approach, this study employed multiple regression analysis with stationary testing to ensure robust inference, complemented by Random Forest machine learning with Leave-One-Out Cross-Validation for predictive accuracy and variable importance ranking. The econometric results identified shadow economy size and inflation rate as the most statistically significant barriers to growth, with a one percentage point increase in each associated with 0.32 and 0.08 percentage point reductions in GDP growth, respectively (p < 0.05). Control of corruption and institutional quality showed positive but statistically weaker effects. The machine learning analysis corroborated these findings, ranking shadow economy (31.8%) and inflation (24.5%) as the dominant predictors of GDP growth, with the Random Forest model achieving superior predictive performance (R2 = 0.68) compared to traditional linear regression (R2 = 0.45). Both techniques converged on the conclusion that formalizing informal activity and stabilizing prices represent the most impactful policy levers for growth enhancement, while institutional quality improvements operate through indirect channels. The findings underscore the urgent need for policymakers to prioritize inflation control through credible monetary policy and to formalize informal economic activity via simplified regulations and anti-corruption measures. This research provides a replicate dual-methodology framework for analyzing institutional economic issues in developing nations with limited data. Full article
(This article belongs to the Special Issue The Nexus of Financial Development and Economic Growth: New Evidence in a Changing Global Economy)
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23 pages, 382 KB  
Article
Tangible and Intangible Determinants of FDI and FPI Inflows: Evidence from BRICS Countries
by Sally Huni, Athenia Bongani Sibindi and Patricia Lindelwa Makoni
Economies 2025, 13(12), 353; https://doi.org/10.3390/economies13120353 - 2 Dec 2025
Cited by 1 | Viewed by 1751
Abstract
While extensive research has explored the determinants of foreign direct investment (FDI) and foreign portfolio investment (FPI) in BRICS nations, there remains a notable gap in understanding the influence of intangible factors, particularly soft power and nation branding. Historically, academic discourse has underemphasized [...] Read more.
While extensive research has explored the determinants of foreign direct investment (FDI) and foreign portfolio investment (FPI) in BRICS nations, there remains a notable gap in understanding the influence of intangible factors, particularly soft power and nation branding. Historically, academic discourse has underemphasized the role of nation branding as a crucial emotional and perceptual component in investment decision-making processes. Consequently, governments in BRICS countries must enhance their national branding efforts to attract both capital and portfolio investment flows. The principal aim of this study was to jointly analyse the tangible and intangible determinants influencing FDI and FPI in BRICS from 1994 to 2024. Employing advanced econometric techniques, specifically the Autoregressive Distributed Lag (ARDL) bounds testing approach for cointegration and Vector Error Correction Models (VECM) for estimation. This study makes a unique contribution to existing literature by examining the nexus between nation branding, FDI and FPI, thereby introducing a novel perspective on the factors driving investment in the BRICS context with an emphasis on non-tangible determinants. The findings indicate that nation branding, along with exchange rate stability, property rights, and financial market development, are significant positive determinants of FPI in these countries. Conversely, capital openness demonstrated a negative relationship with FPI. Moreover, the positive impact of nation branding on FDI within BRICS nations was reaffirmed. This study substantiates the critical role of nation branding as a pivotal driver for both FDI and FPI, emphasising its strategic importance in the economic landscape of BRICS countries. Full article
(This article belongs to the Special Issue The Nexus of Financial Development and Economic Growth: New Evidence in a Changing Global Economy)
18 pages, 307 KB  
Article
Are Institutions, Innovation, and Education the Key to Sustainable Growth in G20 Economies?
by Fırat Cem Dogan
Economies 2025, 13(11), 307; https://doi.org/10.3390/economies13110307 - 28 Oct 2025
Cited by 4 | Viewed by 2114
Abstract
This study aims to examine the fundamental determinants of economic growth in G20 countries in the context of institutional structure, innovation, and education. The significance of the research lies in revealing that sustainable economic growth is shaped not only by traditional macroeconomic factors [...] Read more.
This study aims to examine the fundamental determinants of economic growth in G20 countries in the context of institutional structure, innovation, and education. The significance of the research lies in revealing that sustainable economic growth is shaped not only by traditional macroeconomic factors but also by the effectiveness of institutions, innovation capacity, and human capital investments. The existing literature contains limited studies that comprehensively address the interactions between these three variables and economic growth, specifically in G20 countries. The study applies panel data analysis to G20 countries for the period 2005–2024 and performs panel Granger causality analysis using fixed and random effects models after horizontal section dependence, unit root, and cointegration tests. Empirical findings show that institutions, innovation, and education variables have significant and positive effects on economic growth. Granger causality test results reveal that these variables unidirectionally drive growth, while growth has no feedback effect on these factors. The findings indicate that strengthening institutional reforms, encouraging R&D and innovation investments, and increasing human capital capacity are critical for sustainable and high-quality economic growth for policymakers. Full article
(This article belongs to the Special Issue The Nexus of Financial Development and Economic Growth: New Evidence in a Changing Global Economy)
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