Globalization and Economic Growth as Drivers of Financial Development

Empirical Insights from BRICS Countries

Abstract

This study examines the effects of globalization and economic growth on financial development in South Africa, Brazil, Russia, India, and China (BRICS) over the period 1994–2023. Using panel data techniques, including Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS), along with panel unit root and cointegration tests, we investigate the long-run relationships among the variables. The empirical findings reveal that both economic growth and globalization exert a positive and significant impact on financial development. Rising economic activity enhances financial services by increasing income levels, investment opportunities, and capital requirements, while globalization stimulates the expansion of the financial sector through greater trade openness and cross-border capital flows. The cointegration results confirm the existence of a stable long-run equilibrium relationship among the variables. Overall, the findings support both traditional theories and recent empirical evidence on financial development in emerging markets. The study offers important policy implications for BRICS economies, emphasizing the need to promote sustained economic growth, deeper global economic integration, and stronger institutional and regulatory frameworks to foster financial sector development. By doing so, policymakers in emerging economies can better harness the benefits of globalization to strengthen their financial systems.