The Importance of the Financial Derivatives Markets to Economic Development in the World’s Four Major Economies

摘要

Over the past three decades, China and India have attained economic power close tothat of Japan and the U.S. During this period, the importance of the derivatives market within thefinancial market has been widely recognized. However, little supporting evidence is available on itseconomic effects. This paper investigates the dynamic relationship between the derivatives marketsand economic development in these four large economies, which we consider together as the CIJU(China, India, Japan, and the U.S.) group. We use a Granger-causality test in the framework of a vectorerror correction model (VECM) to examine this causal and dynamic relation with data for the period1998Q1 to 2017Q4. Derivative markets are found to positively contribute to economic developmentin the short run in the U.S., Japan, and India, but the effect disappears in the long run. In China, thederivatives market has a negative effect on economic development in the short run. However, in thelong run, we observe a positive effect from the derivatives market on economic development basedon two long-run estimation techniques, namely, dynamic ordinary least squares and fully modifiedordinary least squares. Also, the development of derivative markets causes growth volatility in India,both in the short run and long run.