Relationship between financial innovation, financial depth, and economic growth

  • Received September 17, 2021;
    Accepted November 12, 2021;
    Published November 22, 2021
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  • Article Info
    Volume 18 2021, Issue #4, pp. 203-212
  • Cited by
    5 articles

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The intrinsic property of modern economic development is financial deepening in the light of incremental spearheading financial innovation opportunities. The paper deals with the relationship between financial depth, financial innovation, and economic growth among 22 OECD economies over 2007–2018 by applying pooled OLS and fixed effect panel data regression analysis. The purpose of the paper is to empirically test whether the economic growth depends on financial depth, financial innovation, and institutional environment (Worldwide Governance Indicators). The findings shed light on the recent discussion on the pros and cons of financial innovation. The estimation results show that while financial depth is a strong predictor of economic growth across high- and upper-middle-income economies, financial innovation is a slightly weaker predictor. Despite the identified positive impact of financial innovation on economic growth, it is asserted that the negative effect of financial depth may indicate oversaturated financial market in developed countries. Сonsistent with the general notion that the institutional framework promotes the capacity of the financial sector for financial innovations implementation, this paper states that financial depth and financial innovations are better prerequisites of economic growth than institutional development.

The paper was funded as a part of the “Relationship between financial depth and economic growth in Ukraine” research project (No. 0121U110766), conducted in the State Institution “Institute for Economics and Forecasting of the NAS of Ukraine”.

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    • Table 1. Summary statistics: macroindicators
    • Table 2. Summary statistics: world governing indices
    • Table 3. Test models variables’ coefficients
    • Conceptualization
      Yuliia Shapoval
    • Data curation
      Yuliia Shapoval
    • Formal Analysis
      Yuliia Shapoval
    • Funding acquisition
      Yuliia Shapoval
    • Investigation
      Yuliia Shapoval
    • Methodology
      Yuliia Shapoval
    • Project administration
      Yuliia Shapoval
    • Resources
      Yuliia Shapoval
    • Software
      Yuliia Shapoval
    • Supervision
      Yuliia Shapoval
    • Validation
      Yuliia Shapoval
    • Writing – review & editing
      Yuliia Shapoval
    • Writing – original draft
      Yuliia Shapoval
    • Visualization
      Yuliia Shapoval