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The finance–growth nexus: Does risk premium matter?
Author(s) -
Adusei Michael
Publication year - 2019
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1681
Subject(s) - nexus (standard) , economics , risk premium , cointegration , liquidity premium , liberalization , financial sector , interest rate , monetary economics , finance , econometrics , liquidity risk , market economy , computer science , market liquidity , embedded system
The bounds testing approach to cointegration analysis is employed in this paper to examine whether the risk premium demanded by the banking sector moderates the finance–growth nexus with data (1970–2015) from South Africa. To the extent that the interaction between risk premium and financial development positively affects growth in the long run, we affirm that the risk premium demanded by the banking sector represents a significant channel through which financial development drives growth. The main policy implication of this finding is that financial liberalization that removes interest rates restrictions, allowing the banking sector to adequately price risk, is in the best interest of the South African economy.