The contribution of financial development to economic growth in BRICS countries

Finance is a driver of growth, but only up to a certain extent. The debate about the influence of financial development on economic growth has been ongoing for more than a century. Since Schumpeter (1912) wrote about the happenings on Lombard Street, right up to the economists of today, there is growing interest in how financial development affects economic activity and hence economic growth. With economic growth gaining prominence in respect of development discourse, an inquiry into the finance-growth nexus has grown rapidly. The latest advances of the finance-growth nexus show a positive relationship between financial development and economic growth. However, in the face of recent financial crises and recessions, the validity of this conclusion has been put into doubt. In this regard, little research has been done globally pertaining to the limits of finance as a driver of growth globally, and within BRICS economies in particular. This research investigates the limits of the influence of financial development on economic growth in BRICS countries. Utilising indices of financial development in Panel Smooth Transition Regressions (PSTR), thresholds to the influence of finance on economic growth are identified for the stock market, the banking sector and financial inclusion initiatives undertaken in BRICS countries. The study found that economic growth is negatively related to stock market development at both low and high levels of stock market development; banking sector development is positively related to economic growth and total factor productivity at both low and high levels of banking sector development. Financial inclusion is positively related to economic growth at low levels of its development. This relationship becomes negative as financial inclusion initiatives grow larger. In a nutshell, stock market development should be pursued as a secondary economic growth policy, banking sector development should be spearheaded as a primary growth strategy. Financial Inclusion should be pursued as a primary growth driver until it reaches a point where it begins to detract from growth. The thresholds and speeds of transitions between low and high levels of financial development indicators should be considered as financial development targets and sequencing inputs for regional financial policy development in BRICS countries.Thesis (PhD) -- Faculty of Business and Economic Sciences, 202