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Journal of Economic Integration 2016 December;31(4) :817-854.
DOI: https://doi.org/10.11130/jei.2016.31.4.817
Causal Nexus between Financial Integration and Economic Growth : Does Nonlinearity Matter?
Sami Saafi
Meriem Bel Haj Mohamed and 
Makram Ben Doudou 
EAS – Faculty of Economic Sciences and Management of Mahdia University of Monastir, Tunisia
Corresponding Author: Sami Saafi ,Tel: +216 73 683 191, Fax: +216 73 683 190, Email: samisaafi@yahoo.fr
Copyright ©2016 Journal of Economic Integration
ABSTRACT
Empirical studies that rely on a linear framework typically fail to find evidence of a causal link between financial integration and economic growth. In this study, we extend the analysis by applying both linear and nonlinear Granger-causality tests to data for 19 emerging and developing countries. Consistent with previous research, the linear causality analysis reveals only weak causal linkages between financial integration and economic growth. In contrast, the nonlinear causality analysis provides evidence of significant nonlinear causality in 18 out of 19 countries. The growth hypothesis holds true for Argentina, Bolivia, Colombia, Morocco, Tunisia, and Venezuela whereas a reverse relation was found in Brazil, Chile, Cote d’Ivoire, Costa Rica, Ecuador, Egypt, South Korea, Malaysia, Mexico, and Paraguay. The feedback hypothesis also exists in Bolivia and Uruguay. Overall, the divergent results in the 19 countries imply that policies cannot be uniformly implemented as there would have been different effects in each country.

JEL Classification
C14: Semiparametric and Nonparametric Methods: General
C22: Time Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
F3: International Finance
O4: Economic Growth and Aggregate Productivity
Keywords: Financial Integration | Economic Growth | Nonlinear Granger Causality | Developing Countries | Emerging Economies
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