Heliyon 8 (2022) e08794

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Heliyon
journal homepage: www.cell.com/heliyon

Research article

Assessing the asymmetric effects of capital and money markets on economic

growth in China
Mohammad Naim Azimi *
Faculty of Economics, Kabul University, Afghanistan

A R T I C L E I N F O A B S T R A C T

Keywords: This study examines the effects of capital and money market predictors on economic growth in China using non-
ARDL linear autoregressive distributed lags and dynamic multiplier methods. Applying asymmetric techniques is based
Symmetries on the hypothesized linear effects of finance on growth. Confirming the asymmetric nexus and long-run bounds
Asymmetries
amid indicators, the results demonstrate that positive (negative) shocks from money market rate decrease (in-
Money market
Capital market
crease) economic growth, while negative (positive) shocks from real interest rate and total liquidity increase
(decrease) growth in the short-run. Besides, the results reveal that the shocks (positive and negative) from market
capitalization and stock market turnover increase economic growth, while the shocks from total stock traded
decrease growth both in the short and long runs. Moreover, the results of error-correction reveal a steady speed of
adjustment of the short-run asymmetries to their long-run equilibrium, implying that improved financial systems
attract sound financial projects, leading to sustainable and long-run economic growth. In light of the findings,
relevant policy recommendations are discussed.

1. Introduction
The contributions made by capital and money markets have proven
their important nexus with economic growth and are well recognized as
significant intermediate conduits driving economic growth by scholars
(Bukowski and Zięba, 2019; Destek et al., 2020; Haseeb et al., 2019;
Hassan et al., 2020; Karimo and Ogbonna, 2017; Le, 2020; Le et al., 2019;
Lestari et al., 2020; Ncanywa and Mabusela, 2019; Twinoburyo and
Odhiambo, 2018), academics, and policymakers. But it is important to
understand the magnitude of the effects of capital and money market
indicators on economic growth, which is truly essential to help policy-
makers construct specific policies in light of the macroeconomic vari-
ables (Chen et al., 2020). Though there are many empirical works about
the nexus between economic growth and financial intermediaries in the
U.S., western regions (Jula and Jula, 2013; Burhop, 2006; Levine et al.,
2000; Bass, 2018; Purewal and Haini, 2021; Swamy and Dharani, 2020;
Coccorese and Silipo, 2015; Shobande and Ogbeifun, 2021), and some
recent studies for China that have postulated impenetrable results
assuming symmetrical nexus amid finance and growth (Burzynska, 2009;
Yaoling, 2009; Wang et al., 2010; Ouyang and Li, 2018; Wu et al., 2020;
Guo and He, 2020), yet studies are scarce for China. Nevertheless,
considering the existing literature on the symmetrical nexus between
finance and growth and the confounding results presented by recent
studies, there is still an obvious gap in the literature, which is filled by the
present study. In particular, most of the recent empirical studies in China
have assumed that the relationship between finance and growth is
symmetrical and they have used linear methods such as vector
error-correction, linear autoregressive distributed lags, vector autore-
gressive, and linear cointegrating regressions (see, for example, Aziz and
Duenwald, 2002; Peng, 2019; Maswana, 2009). In contrast with the
existing literature for China, the present study develops three competing
hypotheses. H1: the finance-growth nexus is asymmetric in both the short
and long run; H2: the money market, capital market, and economic
growth all have long-run bounds; and H3: both money market and capital
market indicators have an asymmetric effect on economic growth. To test
the hypotheses, this study employs the non-linear autoregressive
distributed lags model which is augmented with well-known capital and
money market variables and the dynamic multipliers method to assess
the response of economic growth towards the shocks released by capital
and money market predictors.
Back to the growth puzzles, it is important to explore the contribution
of an underdeveloped financial system to a rapidly growing economy in
China. Although China has witnessed substantial reforms in the past four
decades, the structural improvement in the financial sector of the country

* Corresponding author.
E-mail address: naeem.azimi@gmail.com.

https://doi.org/10.1016/j.heliyon.2022.e08794
Received 7 June 2021; Received in revised form 15 September 2021; Accepted 14 January 2022
2405-8440/© 2022 The Author(s). Published by Elsevier Ltd. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
M.N. Azimi
remains lagging. Before 1949, the financial system of China was well-
developed, witnessing a swift growth in the number of privately owned
banks. But since the conversion of capitalist firms into nationalized ones
with the establishment of the “Peoples' Republic of China”, there has only
been the People's Bank of China, possessed and managed by the ministry
of finance, owing more than 90% of the financial assets, governing the
system, and dealing with almost all the financial transactions in China
(Allen et al., 2017). Despite noticeable centralization, more banking and
nonbanking financial intermediaries emerged during the 1980s. For most
of the 1990s, two stock markets were established. (i) the Shanghai Stock
Exchange and (ii) the Shenzhen Stock Exchange, both of which expanded
during the 1990s and 2000s. In the same span of time, the real estate
market has also emerged which has gained comparable size during the
year 2007. In 2020, the total market capitalization of China touched its
peak ever and exceeded almost 79 trillion yuan, constituting about 59%
of its nominal GDP. China's stock market is one of the world's most
short-term speculative and highly volatile due to a large number of
investors.
According to Huang and Wang (2017) China has built a wide-ranging
financial system, but it has not permitted the open market mechanism to
operate freely as it is based on the dual-track reform strategy of the
country. The foretold strategy imposed between the state and non-stated
sectors did not cause the economy to suppress; rather, it caused greater
financial risks such as the temporal fluctuations of firms' contributions to
the systematic risk, financial institutions’ sensitivity to the systematic
risk, and the long-run risk of capital shortfalls (Zhou et al., 2020; Derbali,
2017). This in turn affected economic efficiency, because it heavily relied
on capital investment and credit as the key drivers of economic growth.
This reliance has posed significant vulnerability and risk to the financial
system of China (Dieppe et al., 2018; Jiang et al., 2020). Recognizing the
existing risks to the financial system, it is further important to support the
unconventional financial sectors that play a significant role in stimulating
economic growth. According to Allen et al. (2005) it is not only the
formal financial sectors that spur economic growth; rather, one can
symbolize the role of the informal financial sectors as an alternative
driver of growth that supports all dynamic sectors of the economy.
Pan and Mishra (2018) state that China's rapidly growing stock
market does not have a significant impact on the real economy in the
short run; rather, state-owned monopolies have a greater impact on
China's economic performance because they encourage economic growth
in the short run. Though the linearity assumption in testing the effects of
the financial market is critical, Ouyang and Li (2018) document the
negative impact of money supply, credit to the insurance industry, and
stock market value on economic growth in China. One can note that the
stock market has had rapid growth in China since its re-establishment,
but is still categorized as an emerging market compared with the
developed markets. This is because China's stock markets are heavily
dominated by naive retail investors (Li, 2017), while the developed
markets are dominated by stylized institutional investors (Ding and
Zhong, 2020). In recognition of institutional investors' role in developing
further efficient capital markets, China has imposed a number of policy
measures to promote the role of institutional investors in contributing to
economic growth.
Nonetheless, considering the participants in China's stock markets,
another key factor that keeps China's stock markets apart from the
world's developed stock markets is the short-selling practice. Practically,
short-selling is regularly practiced in the developed markets, which was
not allowed in China till the middle of 2010, and is highly controversial
as to whether it impacts the capital markets (Chen et al., 2020). Empir-
ically, short-selling mends the price efficiency through the asymmetric
channels of information and liquidity, whereas margin trading improves
the efficiency through the channels of ownership scale.
The present article is intensely different from recent studies and
contributes to the existing literature in three ways. First, using the
2
Heliyon 8 (2022) e08794
principal component analysis method, this study perceives composite
indicators with respect to the capital and money markets that asym-
metrically affect economic growth. Second, the author employs the
asymmetric ARDL model to permit the capital and money market vari-
ables to implore the positive partial sum of squares, the negative partial
sum of squares, and their effects on economic growth by controlling for
the basic macroeconomic variables like net foreign direct investments
and capital investments. Third, the author investigates asymmetric
shocks to economic growth as the response of the growth to the newly
established dynamic equilibrium from the previous period's dynamic
disequilibrium using the dynamic multipliers of capital and money
market indicators. The most interesting results noted by the present study
are also threefold. First, it is evident that the finance-growth nexus is
asymmetrical. Second, all capital and money market variables asym-
metrically impact economic growth in the short run, while capital market
indicators affect growth both in the short and long runs. Third, it is also
evident that economic growth swiftly responds to the plummets in the
capital and money markets. The remainder of this article is organized as
follows: The section “Literature review” reviews the theoretical founda-
tion of the growth-finance nexus and discusses the relevant empirical
literature. The section “Methods” discusses the data and variables of the
capital and money markets and the econometric techniques used to
analyze them. The section “Results and discussions” presents the results
of the study and discusses the analysis. The section “Conclusions” con-
cludes the article and offers a set of policy measures based on the findings
that suit the economic growth in China.
2. Literature review
The literature vastly documents that efficient financial systems ease
capital accumulation and mobilization to boost sufficient liquidity and
credit availability to spur economic growth. Therefore, an improved
financial system to affect economic growth is based on five conduits: (i)
improved human resource management; (ii) boosted capital accumula-
tion and its efficient allocation; (iii) savings mobilization; (iv) interest
rate liberalization; and (v) financial risk management and mitigation
(Levine, 1997), implying that boosted capital accumulation facilitates
higher savings and investments that improve the economic scale and
materialize real economic endeavors (Nyasha and Odhiambo, 2017).
Besides that, an improved financial system reduces the cost of trans-
actions, controls the skewness of financial information, reduces risks, and
makes available capital accumulation and allocation both for the public
and private sectors to contribute to economic growth (King and Robson,
1992; Chakravarty, 1964; Massell, 1962). Therefore, an improved
financial system is an essential factor that drives economic growth. The
initial modern thinking on the theoretical framework of the
finance-growth nexus is traced back to the study conducted by Bagehot in
the 1870s, which demonstrated how financial systems are connected
with economic growth (Stolbov, 2013). This prediction was based on
standard neoclassical demand and supply theory, which was supple-
mented by arbitrage theory (Marwa and Zhanje, 2015).
On the one hand, the existing literature reports a large number of
studies and documents the significant contribution of the financial sys-
tem to economic growth, though the reported contributions are still
unconvincing and arguable; while on the other hand, studies analyzing
the asymmetric effects of the financial system on economic growth are
quite exceptional and rare in various economic contexts. Even if they did,
they have nonetheless postulated baffling results, putting the asymme-
tries of real economic growth in auxiliary debate or denying the critical
requirement for knowledge of the asymmetric effects of macroeconomic
indicators. Regardless of the paucity of the non-linear nexus between the
financial system and economic growth and the specific economic context
of lower or middle class economics and the rest of the economic classes,
the existing literature contains few empirical studies that attempted to
M.N. Azimi
investigate the financial system and the economic growth nexus, in
which Schumpeter (1934) and Patrick (1966, 1972) were the first au-
thors who posited the nexus of the financial system with economic
growth based on (i) the demand-led assumption, (ii) the supply-led
assumption, and (iii) the development stage assumption.
Whereas (i) hypothesizes the dynamic economic growth that spurs
and entices the financial system and is tense to the distinctive response of
the financial system, further structural improvements ease the produc-
tivity and enhance the required financial development that errands the
financial systems to suit economic growth (Manta et al., 2020;
Odhiambo, 2004, 2008; Rachdi, 2011), while (ii) assumes that the
financial system spurs economic growth and infers that suitably delib-
erated financial market reforms upkeep the efficiency with which capital
accumulation and investments boost economic growth (see, for instance,
Levine, 2003; Calder
on and Liu, 2003; Demirhan et al., 2011; Kar et al.,
2011), and (iii) assumes that the consideration of the development stage
describes a development transference between (i) and (ii) hypotheses
that finally cause economic growth and improve the financial system.
That is, originally, the appropriate integration of economic growth,
which boosts production and offers the essential arrangements that
improve the integration of the financial system. This way, higher foreign
capital, technologies and skills flow through the liberalization and
enhance their leverage to economic growth as the supply-led improves in
the long run (Patrick, 1966).
Considering these intuitions, recent studies have posited various
findings with respect to the financial system's effects on economic
growth. Therefore, the present study explores these studies and pledges a
one-way causality that can either be growth-led or financial system-led.
Abu-Bader and Abu-Qarn (2008) explored the causal nexus between
economic growth and financial development for six Middle Eastern and
North African countries, including Algeria, Egypt, Israel, Morocco, Syria,
and Tunisia. The authors employed the vector autoregressive of
Toda-Yamamoto and reported strong statistical evidence to support the
hypothesis that finance leads to growth in Algeria, Egypt, Morocco, Syria,
and Tunisia, but weak causality for growth-finance in Israel. Masih et al.
(2009) tested the demand-led and supply-led hypotheses for Saudi Ara-
bia and used the error-correction and variance decomposition methods.
The author found evidence supporting the supply-led and rejected the
demand-led hypotheses. Augustine and Pius (2010) examined the impact
of stock market development on economic growth in Nigeria using the
ordinary least square and found that the stock market size and the
turnover ratios are significantly positive to explain the economic growth,
but the stock market liquidity is negative to affect the growth in the
long-run.
Kar et al. (2011) investigated the direction of causality between
financial development and economic growth in the Middle East and
North African countries using the Seemingly Unrelated Regressions and
Wald tests with the country-specific bootstrap critical values. The authors
found that there is no significant harmony with respect to the causality
direction between finance and growth in light of the country-specific
observation. Bojanic (2012) explored the growth-finance-trade nexus
and employed the Granger regression and error-correcting models on a
set of time series data for Bolivia. The authors provided statistical support
for a long-run relationship between economic growth, financial devel-
opment, and trade openness, while they also noted that there is only a
unidirectional causality from financial development and trade openness
to economic growth.
Shahbaz et al. (2013) tested the economic growth nexus with energy
consumption, financial development, trade openness, and CO2 emissions
for Indonesia using a quarterly dataset from 1975Q1-2011Q4 and
employed the autoregressive distributed lags bound testing method to
ascertain the long-run memory between the indicators. The authors
found that the indicators are cointegrated and the causality supports the
feedback hypothesis between the indicators, while their results also open
up new policy insights to consider financial development and trade
3
Heliyon 8 (2022) e08794
openness as key factors that stimulate environmental quality. In
exploring the empirical literature, Alkhuzaim (2014) employed cointe-
gration analysis and Granger causality techniques based on error
correction on a set of data from 1992 – 2012 for Qatar. The author found
that there is a positive long-run nexus between financial development
and economic growth, and that there is a bidirectional causality between
broad money and economic growth as well as a unidirectional causality
between domestic credit and economic growth.
Unlike the existing studies for Nigeria that symmetrically tested the
finance-growth nexus, Adeniyi et al. (2015) re-examined the relationship
between financial development and economic growth by applying
asymmetric regression to a set of time-series data from 1960–2010. The
authors provided statistical evidence that financial development has a
negative impact on economic growth but a sign reversal results in
considering the threshold-type effects as using a composite index of FD
led to a similar outcome for Nigeria. Moreover, Contuk & Güng€ or (2016)
investigated the finance-growth relationship using quarterly data from
1998 to 2014. Employing Granger causality techniques, their results
reveal statistical support for both the supply-led and the demand-led
hypotheses. Similarly, Nyasha & Odhiambo (2017) examined the effect
of both bank- and market-based financial development on economic
growth using a set of data from 1980 to 2012 for Kenya. The authors used
the autoregressive distributed lag bounds testing approach and found
that market-based financial development positively affects economic
growth and that bank-based financial development has an insignificant
impact on economic growth.
Further review of the existing literature reveals that after the global
financial crisis in 2008, some posit a positive nexus between financial
liberalization and economic growth, while others posit a negative nexus
between financial liberalization and economic growth. With these in-
sights, Batuo et al. (2018) examined the relationship between financial
instability, financial liberalization, financial development, and economic
growth for 41 African economies using a set of data from 1985–2010. The
authors found that financial development and financial liberalization
positively affect financial instability, while economic growth minimizes
financial instability. Pinshi (2020) examined the direction of causality
between financial development and economic growth in the Democratic
Republic of the Congo using a set of data from 2004 to 2019. The author
found that the long-run is insignificant, but there is a short-run causality
between the indicators, concluding that financial development leads to
economic growth.
Nguyen et al. (2021) investigated the influence of economic growth,
financial development, transportation capacity, and environmental
degradation using a symmetric autoregressive distributed lags model on
a set of data from 1986 to 2019. The authors showed that there is a
significant long-run memory among the variables, and their results pro-
vided statistical evidence that an increase in economic growth and
financial development deteriorates the environmental quality, while
transportation capacity and foreign investment provide a reversible
feedback. As a general approach to testing the finance–growth nexus,
almost all of the recent studies assumed linearity and employed sym-
metric techniques such as cointegrating regressions, vector autore-
gressive, vector error-correction, autoregressive distributed lags, Granger
causality, and ordinary least squares, whereas a few studies assumed
non-linear relationships between the financial system and economic
growth and applied asymmetric techniques. These authors are Ehigia-
musoe and Narayanan (2019), Tsagkanos et al. (2019), and Shodipe and
Shobande (2021), who studied, respectively, in a wide-ranging economic
context, Greece, and the U.S., but there is yet no study concerning the
asymmetric effects of the financial system on economic growth in China,
which is the fastest-growing economy in the world. This article is a
distinctive work that significantly contributes to the literature and fills
the existing literature gap that has been missed by recent studies (see
Table 1 for a summary of some relevant empirical studies with regards to
China's economy).
M.N. Azimi Heliyon 8 (2022) e08794

Table 1. A summary of some relevant empirical literature.

Author(s) Economy Dataset Method Assumption Findings

Aziz and Duenwald (2002) China 1988–1997 Panel regression Symmetric In addition to the existence of a nexus between financial
markets and economic growth, domestic investments play a
relatively small role in economic growth compared to
foreign investment.
Shan and Jianhong (2006) China 1978–2001 VAR, IRF Symmetric Financial development affects economic growth as the
second force after labor inputs in China. Financial
development and economic growth show bidirectional
causality and thus support the finance-led growth
hypothesis.
Maswana (2009) China Granger causality Symmetric The author posits that there is a bidirectional causality
between economic growth and the financial development
indicators.
Peng et al. (2014) China 1978–2004 Delphi, PCA, VAR Symmetric The authors find evidence of significant positive effects of
liberalization on growth in the short run and on accumulated
growth in the long run.
Kandil et al. (2017) China and India 1970–2013 Panel cointegration Symmetric The authors find that in the long run, financial development
improves economic growth both in India and China, but
globalization accelerates economic growth only in India.
Pan and Mishra (2018) China 1991–2015 ARDL Symmetric The authors find a significant impact of global financial crisis
on real and financial sectors in China.
Bai (2019) China 1990–2017 Granger causality Symmetric The author finds significant casual linkages between stock
market, human capital, and economic growth.
Peng (2019) China 1998–2008 DGEM Symmetric The author finds that the structural reforms ease business
formation and growth led to higher aggregate output based
on the resource reallocation resulting from stronger market
competition.
Kumar and Paramanik (2020) India 1996:Q1 to 2018:Q3 NARDL Asymmetric The authors find that financial development has a long-run
asymmetric impact on economic growth in India.
Vo et al. (2020) China 1970–2015 ARDL Symmetric The authors find a long-run relationship between financial
integration and economic growth. They also document a
bidirectional causality between the indicators of economic
growth and financial integration.
Alenoghena et al. (2020) Nigeria 1980–2018 NARDL Asymmetric The authors find that financial development indicators have
a long-run bound with economic growth and they show a U-
shaped asymmetric relationship.

Notes: ARDL: Autoregressive distributed lags, VAR: Vector autoregressive, IRF: Impulse response function, PCA: Principal component analysis, DEGM: Dynamic general
equilibrium model, NARDL: Non-linear autoregressive distributed lags.

3. Methods
3.1. Data
The dataset contains quarterly time series ranging from 2003Q1 to
2019Q1 concerning macroeconomic indicators in China from the WDI
(World Development Indicators) sources that are relevant to the World
Bank Group and available at (https://databank.worldbank.org/). The
variables used in the present study are consistent with the theoretical
framework in finance and the recent empirical literature (Anderu, 2020;
Mishra et al., 2010; Ogbuji et al., 2020; Pokharel, 2020), and they include
(i) per capita GDP growth as the dependent variable, (ii) market capi-
talization as a percentage of the GDP, (iii) total stock traded value to
GDP, (iv) stock market turnover, (v) money market rate, (vi) real interest
rate, (vii) annual growth rate of the broad money as a proxy for total
liquidity, (viii) gross fixed capital formation to GDP as a proxy for capital
investment, and (ix) net foreign direct investment inflows to GDP. The
indicators (ii-iv) are used to measure the capital market, the indicators
(v-vii) are used to measure the money market, and the indicators (viii and
ix) are used as the control variables (see: Table 2 for complete variable
definition and summary statistics). For better results, time-series econo-
metric analysis encourages the use of high-frequency observations. At the
same time, the required dataset for more periods before the year 2003 is
not available for the indicators used in the present study. Therefore, this
study follows Asogu (1997) and Azimi and Shafiq (2020) for the linear
interpolation of the data and converts the original annual dataset into
quarterly observations. The quarterly series holds the same property
without any difference in the trend and magnitude of the data.
Table 2 describes the variables and provides summary statistics
relevant to the indicators used in the present study. It reveals that the
dependent variable, per capita GDP growth, shows an average of 8.565%
and a maximum of 13.635%, which indicates a comparatively fair in-
crease in per capita GDP growth during the period in China. On the re-
gressors' front, market capitalization (MC) shows a mean value of
54.297% of GDP, indicating a stimulus to economic growth in China. The
total stock traded value to GDP (ST) shows an average value of 112.522
to the GDP, which reveals the increase in boosting the capital base of the
listed firms (Ogbuji et al., 2020) in China during the period under this
study. The average value of the stock market turnover (SMT) stands at
206.716 with a minimum of 77.304 and a maximum value of 556.912
that represents a relatively high stock turnover that stimulates the eco-
nomic growth in China. The total liquidity (TL) presents an average
growth of 15.341%, the real interest rate (INT) stands at an average of
1.636%, and the money market rate (MMR) shows an average of 2.140%.
On the control variables, one can see that the average net FDI inflows to
GDP (NFDI) is 3.017. It is expected that FDI is the source of funds for
acquisitions that spur economic growth (Yousaf et al., 2011). Finally, the
summary statistics show that capital investment (CIN) averaged at
41.716 to GDP during the study period. Next, Table 3 presents the results
of the correlation coefficients in a matrix format. The results indicate that
PCGDPG being the dependent variable is not significantly correlated with
the money market, capital market, and control variables.

4
M.N. Azimi Heliyon 8 (2022) e08794

that the first component allows for the maximum explanatory power to
Table 2. Variables definitions and summary statistics. fairly account for the variations in the capital and money market vari-
Symbols Variables' definitions Mean Std. Min. Max. Obs. ables, and therefore it only interprets the first component. Moreover, the
Dev. estimated values in the last-right column are the values that consider the
Dependent variable final depth variables that are fed into the subsequent equations.
PCGDG Per capita GDP 8.565 2.140 5.571 13.635 Qty.
growth (annual %)
3.2. Econometric methods
Money market variables
TL Total liquidity proxy 15.341 4.957 6.991 28.423 Qty.
Adopting all the estimating procedures used by Chen et al. (2020),
by M3 (broad money
annual growth %) this section explains the econometric methods used to examine the
INT Real interest rate 1.636 1.964 -2.305 5.531 Qty. asymmetric effects of capital and money market indicators on economic
(annual %) growth, which is the asymmetric ARDL, and therefore, the non-linear
MMR Money market rate 2.140 1.971 -2.330 5.450 Qty. ARDL model of Shin et al. (2014). In the present study, employing the
(%) asymmetric ARDL model is based on its superiority over the linear ARDL
Capital market variables model, as the former allows including the possibility of non-linear effects
MC Market capitalization 54.297 20.937 17.579 126.153 Qty. of positive and negative changes in the independent indicators, whereas
(GDP %) the latter does not. Besides, the asymmetric ARDL model provides the
ST Total stock traded 112.522 70.548 17.164 355.519 Qty. estimation and graphical representation of cumulative dynamic multi-
value to GDP pliers to delve into the adjustment outlines following the positive and
SMT Stock market 206.716 94.313 77.304 556.912 Qty. negative shocks to the outcome variable (Menegaki, 2019). Moreover,
turnover
the asymmetric ARDL model allows asymmetric shifts from short-run to
Control variables
long-run effects (see, for instance, Chen et al., 2020). In this faith, the
NFDI Net FDI inflows to 3.017 1.055 1.091 4.554 Qty.
present study initiates the empirical modeling from symmetric ARDL
GDP
method proposed by Pesaran et al. (2001). Thus, let yt and xt be a set of
CIN Gross fixed capital 41.716 2.209 37.892 44.518 Qty.
formation to GDP %
bivariate macroeconomic indicators showing mixed integrating orders of
as a proxy for capital I(0) and I(1) without any I(2) series. The symmetric ARDL model is
investment expressed as:
Notes: Sample size adjusted from 2003Q1 to 2019Q1. All data are collected from Xu1 Xv1
WDI official website. FDI: Foreign direct investment, GDP: Gross domestic Δyt ¼ φy yt1 þ φx xt1 þ λkt þ i¼1
ηiy Δyti þ i¼1
ηix Δxti þ εt (1)
product, Min.: Minimum, Max.: Maximum, Std. Dev.: Standard Deviation, Obs.:
Observations, Qty.: Quarterly observations. where the change sign Δ, φ, η, λ, and ε respectively present the long-run
coefficients, short-run coefficients, vector of deterministic regressors
considered as exogenous like trend, and the error term. First, it is to test
Before estimating the base model to test the hypotheses, it is impor- for cointegration. Therefore, Eq. (1) is cointegrated if yt andxt have a
tant to check whether there is a perfect collinearity among the variables. long-run nexus and reject the null hypothesis of no cointegration either
In the existence of perfect collinearity, it is hard to distinguish the indi- φy ¼ φx ¼ 0 jointly or φy ¼ 0; φx ¼ 0 separately using the Wald test
vidual effects of the explanatory variables on the outcome variable, while (Chen et al., 2020) that respectively results in F-statistics and t-statistics.
their joint effect remains unaffected. Since there is no perfect collinearity If the F-statistics are greater than the critical value, say, at 5% for the
among the indicators and the present study employs an asymmetric upper bound, the cointegration is confirmed, and if the F-statistics are
model, the estimated coefficients of the base model, therefore, the less than the critical value, say, at 5% for the lower bound, the null hy-
NARDL model, are consistent and unbiased. Following the correlation pothesis of no cointegration cannot be rejected. One can note that if the
analysis, it is quite important to understand the explanatory power of the calculated F-statistics fall between the critical values of the lower and
money market and capital market indicators on the dependent variable. upper bounds, say, at 5%, the test is inconclusive about the null hy-
Therefore, the PCA (principal component analysis) technique is applied pothesis. Considering the econometric literature (see, for instance,
and the results are reported in Table 4. Pesaran et al., 2001; Shin et al., 2014), the ARDL model has several
The results of the principal component analysis reveal that compo- comparative advantages over the cointegrating regressions. The present
nents one to nine posit explanatory power ranging from 48% to 12%, study does not aim to discuss the advantages; rather, it aims to explore
which implies that in the first component, 48% of the variation of the the asymmetric foundation of the model. This is because if yt andxt have
indicators is considered matched with less than 12%. Therefore, it notes non-linear relationships, the use of linear models and symmetric

Table 3. Correlation results.

Correlation Matrix PCGDPG TL INT MMR MC ST SMT NFDI CIN

PCGDPG 1
TL 0.417 1
INT 0.012 0.034 1
MMR 0.332 0.868 -0.162 1
MC -0.490 -0.401 -0.174 -0.532 1
ST -0.655 -0.459 0.081 -0.560 0.923 1
SMT 0.365 0.514 0.566 0.380 -0.497 -0.445 1
NFDI 0.251 0.339 0.711 0.182 -0.473 -0.369 0.961 1
CIN -0.234 -0.092 -0.017 -0.300 0.713 0.709 -0.206 -0.200 1

Notes: PCGDPG: Per capita GDP growth, TL: Total liquidity, INT: Real interest rate, MMR: Money market rate, MC: Market capitalization, ST: Total stock traded, SMT:
Stock market turnover, NFDI: Net foreign direct investment, CIN: Capital investment.

5
M.N. Azimi Heliyon 8 (2022) e08794

Table 4. Principal component analysis results.

Components Eigen Variance % Cumulative proportion % First PC Second PC Third PC

1 4.3525 48.36 48.36 0.301 -0.145 0.025
2 1.9912 22.12 70.49 0.329 -0.104 0.585
3 1.2953 14.39 84.88 0.134 0.610 -0.109
4 0.7367 8.19 93.06 0.33 -0.278 0.438
5 0.3229 3.59 96.65 -0.418 0.123 0.293
6 0.2092 2.32 98.98 -0.416 0.261 0.231
7 0.0793 0.88 99.86 0.372 0.388 0.127
8 0.0106 0.12 99.98 0.331 0.491 -0.016
9 0.0022 0.02 100.00 -0.28 0.212 0.546

Notes: Sample size adjusted from 2003Q1 to 2019Q1. PCA extraction is based on 9 of 9 indicators loaded in the system. Eigen values: (sum ¼ 9, average ¼ 1). PC:
Principal component.

assumptions produces inconsistent results (Anderson et al., 2014), lead- Δyt ¼ ρyt1 þ λþ þ   þ þ  
1 cmt1 þ λ2 cmt1 þ λ3 mmt1 þ λ4 mmt1
ing to delusive policy inferences. To this faith, the asymmetric ARDL Xp Xq
þ i¼1 δi Δyti þ ϑþ Δcmþ
i¼1 i;1
 
ti þ ϑi;2 Δcmti (6)
model proposed by Shin et al. (2014) captures the stated empirical
shortcomings. The asymmetric ARDL approach decomposes the positive þϑþ þ
i;3 Δmmti þ ϑ 
i;4 Δmmti þ et
and negative partial sum of squares to implore the asymmetric effects of
Eq. (6) is asymmetric, say, non-linear ARDL model proposed by Shin
both long and short runs of xt onyt and produces consistent and
et al. (2014), in which ϖ þ ¼ λþ =ρ andϖ  ¼  λ =ρ, δ andϑ, and et are
spurious-free results, assuming non-linearity. Considering the present
respectively the long-run asymmetries, short-run dynamics, and the
study, letegt , cmt , and mmt respectively represent economic growth, the
stochastic error term. One can assume that Eq. (6) is cointegrated if based
capital market, and the money market. Thus, Eq. (1) can be modified into
on F-statistics the null hypothesis of no cointegration is rejected (Pesaran
the following long-run linear asymmetric equation:
et al., 2001). Since foreign direct investments and the capital investment
egt ¼ φþ cmþ   þ þ   indicators also affect economic growth, controlling for these variables
t þ φ cmt þ φ mmt þ φ mmt þ ut (2)
results to produce better estimates of the long (short) run asymmetries.
where φþ ðφ Þ are the positive (negative) partial sums of changes incmt Therefore, Eq. (6) is modified using the control variables ðπ Þ as follows:
and mmt that are incorporated by the function cmt ¼ cmt þ cmþ t þ cmt


andmmt ¼ mmt þ mmþ t þ mm 

t based on the following process:

X
t X
t
  X
t X
t
 
cmþ
t ¼ Δcmþ
j ¼ max Δcmj ; 0 ; cm
t ¼ Δcm
j ¼ min Δcmj ; 0 ;
j¼1 j¼1 j¼1 j¼1
(3)
X
t X
t
  X
t X
t
 
mmþ
t ¼ Δmmþ
j ¼ max Δmmj ; 0 ; mm
t ¼ Δmm
j ¼ min Δmmj ; 0
j¼1 j¼1 j¼1 j¼1

The linear I(0) combination ðψ t Þ of Eq. (2) and non-linear partial

Δyt ¼ ρyt1 þ λþ þ   þ þ   þ þ  
1 cmt1 þ λ2 cmt1 þ λ3 mmt1 þ λ4 mmt1 þ λ5 π t1 þ λ6 π t1
squares would be: Xp Xq Xq Xq
þ i¼1 δi Δyti þ ϑþ Δcmþ
i¼1 i;1 ti þ ϑ Δcm
i¼1 i;2 ti þ ϑþ Δmmþ
i¼1 i;3 ti
ψ t ¼ k þ λþ1 egtþ þ λ2 egt þ φþ1 cmþt þ φ2 cmt þ φþ3 mmþt þ φ4 mmt þ ut Xq
 
Xq
 
Xq
 
þ i¼1 ϑi;4 Δmmti þ ϑ π þ
i¼1 i;5 ti
ϑ π þ et
i¼1 i;6 ti
(4)
(7)
In Eq. (4), stationarity is achieved if ψ t ¼ Ið0Þ and with the linear
long-run asymmetric cointegration for rejected H0 : λþ  þ Moreover, the present study investigates how the ðegt Þ responds in the
1 ¼ λ2 ¼ φ1 þ
φ ¼ φþ
þ φ
¼ 0. Although Eqs. (2) and (4) postulate to have multi- long run to standard asymmetric shocks in the capital market and money
2 3 4
collinearity and endogeneity problems that need to be adjusted before market using the dynamic multiplier. The dynamic multiplier is used to
analyzing the cointegration, the dynamic form of Eqs. (2) and (4) are expedite the sequential growth element as it changes from the milieus of
rationale to identify them. To this faith, Eqs. (2) and (4) can be recon- the previous short-run dynamism and the early non-stabilities into a new
sidered as follows: equilibrium after a standard shock. The equation used is expressed as
follows:
Xp Xq  
egt ¼ ξunti þ φþ  þ 
1 cmt þ φ2 cmt þ φ3 mmt þ φ4 mmt þ ut (5) Xh Xh Xh ∂ðegt Þ Xh
i¼1 i¼0 ∂ðegt Þ
mhþ ¼  ¼ φþ ; mh ¼  ¼ φ ;
i¼0 ∂ cmþt i¼0 i i¼0 ∂ cm i¼0 i
where ξ presents the autoregressive parameter andφð1 4Þ are used as t

the dynamic adjusting parameters including cointegrating dynamism. Xh ∂ðegt Þ Xh Xh ∂ðegt Þ Xh

mhþ ¼  ¼ φþ 
i ; mh ¼
 ¼ φ
This takes the following form: i¼0 ∂ mmþ
t
i¼0 i¼0 ∂ mm
t
i¼0 i

(8)

6
M.N. Azimi Heliyon 8 (2022) e08794

Table 5. Unit root test results.

Variables Augmented Dickey-Fuller Phillips-Perron Ng & Perron

Constant Constant and trend Constant Constant and trend Constant Constant and trend
At level
PCGDPG -1.390 [0.518] -3.855** [0.019] -0.740 [0.828] -2.541 [0.307] -2.431 -5.953
MMR -1.756 [0.398] -2.847 [0.187] -2.283 [0.180] -2.622 [0.272] -7.494 -7.759
INT -1.895 [0.332] -2.354 [0.398] -2.551 [0.108] -2.859 [0.182] -7.953 -7.612
TL -0.632 [0.854] -2.177 [0.492] -1.206 [0.666] -2.105 [0.533] -4.379 -7.208
MC -3.914*** [0.008] -3.889*** [0.004] -3.499*** [0.009] -3.520*** [0.007] -19.863*** -18.254**
SMT -2.652* [0.088] -3.223* [0.089] -2.270 [0.184] -2.413 [0.369] -6.878 -7.910
ST -3.812*** [0.009] -3.828*** [0.002] -3.860*** [0.002] -3.705*** [0.005] -14.021*** -23.945***
NFDI -0.842 [0.799] -3.961** [0.015] -0.203 [0.932] -2.620 [0.273] -1.672 -5.990
CIN -2.051 [0.246] -2.407 [0.372] -1.662 [0.445] -1.509 [0.816] -5.077 -10.581
At first difference
PCGDPG -3.053** [0.035] -3.083** [0.024] -3.276** [0.020] -3.313* [0.073] -16.779*** -18.467**
MMR -3.322*** [0.008] -2.354 [0.398] -3.867*** [0.003] -3.869** [0.019] -23.597*** -23.038***
INT -3.488*** [0.009] -3.468** [0.012] -3.737*** [0.005] -3.703** [0.029] -19.697*** -18.277**
TL -3.173*** [0.009] -3.161*** [0.012] -3.729*** [0.005] -3.720** [0.028] -17.347*** -18.564**
MC -4.003*** [0.000] -4.093*** [0.001] -3.872*** [0.000] -3.852*** [0.008] -11.810*** -12.177
SMT -3.878*** [0.000] -2.826 [0.194] -3.901*** [0.003] 3-.891*** [0.009] -19.161** -23.064***
ST -3.652*** [0.002] -3.706*** [0.001] -3.796*** [0.000] -3.781*** [0.001] -14.091*** -25.601***
NFDI -3.218** [0.023] -3.338* [0.069] -3.467** [0.012] -3.592** [0.038] -11.357** -24.244***
CIN -3.587*** [0.001] -3.579*** [0.003] -3.740*** [0.004] -3.743*** [0.009] -19.917*** -19.042**
a
Notes: ***,**,* present significance at 1%, 5%, and 10%, respectively. Lag length is selected using SIC (Schwarz Information Criterion). Sample size adjusted from
2003Q1 to 2019Q1. PCGDPG: Per capita GDP growth, INT: Real interest rate, TL: Total liquidity, MC: Market capitalization, SMT: Stock market turnover, ST: Total stock
traded, NFDI: Net foreign direct investments, CIN: Capital investments. Critical values for Ng. Perron test come from the Ng and Perron (2001) table.

where mhþ ðmh Þ are the asymmetric long-run coefficients that are Perron than the critical values at 5%, while INT (real interest rate) is non-
empirically consistent whenm tends to infinity. As a robustness check, stationary at the level but it becomes stationary after the first difference.
granger causality test is performed to test any potential endogeneity Lastly, the control variables, namely, the NFDI (net foreign direct in-
issue. Finally, the present study employs several post-estimation tests to vestments) and the CIN (capital investments) are integrated of first order,
ensure consistent and spurious-free results. These tests are: Breusch- which means that they become stationary after the first difference.
Pegan Godfrey, Breusch Godfrey, Jarque-Berra, Remesy, CUSUM (cu- Since the variables, namely, economic growth, money market, capital
mulative sum), and the CUSUMSQ (cumulative sum of squares) in market, and the control variables follow mixed integrating orders, say,
allowing for important post-estimate examinations such as the hetero- I(0) and I(1) without any I(2) series, the study proceeds to estimate and
scedasticity, serial correlation, normal distribution of the residuals, and analyze the asymmetric ARDL model. However, the results of the Pesaran
model stability. et al. (2001) ARDL bound test to cointegration based on Eq. (7) are also
reported in Table 6. The estimation of Eq. (7) is based on automatically
4. Results and discussions selected lags using the Akaike information criterion, the Schwarz crite-
rion, and the Hannan-Quinn criterion. The results of bound testing
This section begins with the unit root analysis to test H0 : δ ¼ 0 (non- indicate that (F ¼ 4.122; critical value for I(1) ¼ 3.39) and (t¼ -4.807;
stationary series) against H0 : δ 6¼ 0 (stationary series) using the critical value for I(1) ¼ -4.72) are significant at 5% to reject the null
augmented Dickey and Fuller (1979), the Phillips and Perron (1988), and hypothesis of no cointegration in favor of its alternative hypothesis,
the Ng and Perron (2001) tests to trace out and exclude any indicator implying that there is a long-run asymmetric relationship among the
sowing I(2) series from the asymmetric ARDL model (Shrestha and indicators. Moreover, Table 7 reports the results of the Wald test used to
Bhatta, 2018). The results of the unit root tests are reported in Table 5 test the null H0 : λþ  þ  þ 
1 ¼ λ2 ¼ φ1 þ φ2 ¼ φ3 þ φ4 ¼ 0 against its alterna-
and show that the indicators follow mixed integrating orders. The tive HA : λþ
1 ¼
6 λ 
2 ¼
6 φþ
1 þ φ 
2 ¼
6 φþ
3 þ φ
4 ¼
6 0. The results indicate that the
dependent variable PCGDPG (per capita GDP growth) is an I(1) series as corresponding p-values of both short and long runs statistics are (WSR ¼
it becomes stationary after the first difference. 0.000 < 0.01, WLR ¼ 0.000 < 0.01) supporting the rejection of null
The money market variables, namely, MMR (money market rate), INT
(real interest rate), and TL (total liquidity) are also I(1) series as their
corresponding p-values for the ADF (augmented Dickey-Fuller) and the Table 6. Bound testing results.
PP (Philips-Perron) tests are greater than 0.05 at the level, while their test
Statistics Significance Critical values
statistics are lower than the critical values at 5% for the Ng and Perron
test. Thus, one cannot reject the null hypothesis of non-stationarity. The I(0) I(1)
money market variables become stationary after the first difference as F-statistics 4.122*** 5% 2.22 3.39
their corresponding p-values are less than 0.01 and 0.05. Therefore, they t-statistics -4.807*** 5% -2.86 -4.72
are I(1) series. On the capital market variables’ front, the MC (market Notes: ***,**,* present significance at 1%, 5%, and 10%, respectively. Sample
capitalization) and the ST (total stock traded) are I(0) series displaying size spans from 2003Q1 to 2019Q1 after lags adjustment selected by AIC, SC, and
the corresponding p-values both for the ADF and the PP tests that are less HQ criterions. Critical values for lower bound I(0) and upper bound I(1) are
than 0.01 and 0.05 supported by smaller test statistics of the Ng and collected from Pesaran et al. (2001).

7
M.N. Azimi Heliyon 8 (2022) e08794

borrow more money to finance business expansion, but an increase in the

Table 7. Symmetric test results.
Wald statistics Test statistics [p-value]
P Pp1 
WSR, p1
j¼0 nj ¼
*
j¼0 nj 264824.4*** [0.000]
WLR,  θ* =φ ¼  θ = φ 7679908.*** [0.000]
Notes: ***, **, * present significance level at 1%, 5%, and 10%, respectively.
Sample size spans from 2003Q1 to 2019Q1 after lags adjustment. The null hy-
pothesis H0 : λþ  þ  þ  þ
1 ¼ λ2 ¼ φ1 þ φ2 ¼ φ3 þ φ4 ¼ 0 (symmetries) against HA : λ1 6¼
λ þ  þ 
2 6¼ φ1 þ φ2 6¼ φ3 þ φ4 6¼ 0 (asymmetries). WSR and WLR respectively are the
short-run and the long-run asymmetries.
hypothesis in favor of its alternative. This implies that in the short and
long run, the positive and negative partial sum of square effects and
levels of capital and money market variables on economic growth are
different. In sum, the results of the Wald test provide significant evidence
to reject the null and support the asymmetric behavior of the indicators.
Since the results obtained from the Wald test reveal that capital and
money market indicators differently affect economic growth at different
levels both in the short and long runs, it triggers further statistical
analysis to explore their level of positive and negative impacts on eco-
nomic growth (Chen et al., 2020). To this faith, the present study com-
putes the asymmetric ARDL model and reports its results in Table 8.
These results show, on the one hand, that MMRþ 1;t1 (positive partial sum
of squares of money market rate) has an asymmetrically significant
impact on economic growth, implying that positive shocks from the
money market rate spur economic growth by 0.221%, while on the other,
MMR 1;t1 shows a significant coefficient of -0.228, meaning that the
negative shocks from the money market rate decrease economic growth
þ
by 0.228%. The INT1;t1 (positive partial sum of squares of the real in-
terest rate) shows a significant coefficient of -0.154, implying that a unit
increase in the real interest rate decreases economic growth by 0.154%,
while its negative partial sum demonstrates that with a unit decrease in
the real interest rate, economic growth increases by 0.162%. This result
is related to the fact that low interest rates encourage borrowers to
cost of money, say, the interest rate, means less cash is available to
finance business needs. Therefore, in aggregate, a decrease in interest
rates increases economic growth, while its increase has reverted behavior
in the economy.
With total liquidity, the positive partial sum TLþ
1;t1 and the negative
partial sum TL 1;t1 respectively, imply that positive shocks from total
liquidity decrease economic growth by 0.193%, while its negative shocks
spur economic growth by 0.138%. Liquidity is an integral component of
financial markets and is of interest to investors, businesses, and regula-
tors. Consistent with recent studies (see for instance: Hameed et al.,
2010) showing that more liquidity negatively reacts to trading en-
deavors. The results shown in Table 8 indicate that an increase in total
liquidity suppresses economic growth, while a decrease in total liquidity
spurs economic growth in China. For brevity, the results indicate that
controlling for net foreign direct investments and capital investments, all
money market and capital market variables, namely, money market rate,
real interest rate, total liquidity, market capitalization, stock market
turnover, and the total stock traded, have both positive partial sum and
negative partial sum significant impacts on economic growth in China. In
exporting the effects of financial development on economic growth,
comparatively, Jalil et al. (2010) used the symmetric ARDL and bound
testing approach, in which they only provided evidence of a long-run
relationship between financial development and economic growth in
China, though the magnitude of effect levels were implicitly presented.
Under the assumption of symmetrical effects of financial integration on
economic growth, Vo et al. (2020) discovered that financial integration
symmetrically affected economic growth by -0.844% and -0.766% in the
long-run, while the short-run effects were symmetrically positive to in-
fluence economic growth in China. Ignoring both control variables and
the asymmetrical nexus of finance-growth, their results seem to be
confounded by high level effects and reverse magnitude.
On the statistical validation front, all the results obtained and re-
ported in Table 8 are spurious-free. The adjusted r-squared value is
99.9%, showing high goodness of fit and accounting for 99.9% of the
variations in the observations. It is important to note that the r-squared

Table 8. Asymmetric results of the ARDL estimates.

Dependent variable: Per capita GDP growth Asymmetric ARDL models estimates

MMRþ
t1 MMR
t1
þ
INTt1 
INTt1 TLþ
t1 TL
t1

Money market variables

Coefficients 0.211*** -0.228*** -0.154*** 0.162*** -0.193*** 0.138***
Std. Error 0.036 0.037 0.052 0.055 0.011 0.026
t-statistics 5.873 -6.110 -2.972 2.960 -18.276 5.236
þ  þ  þ 
Capital market variables MCt1 MCt1 SMTt1 SMTt1 STt1 STt1
Coefficients -0.035*** -0.041*** -0.009*** -0.019*** 0.014*** 0.036***
Std. Error 0.004 0.002 0.002 0.002 0.003 0.003
t-statistics -8.724 -17.614 -3.770 -11.901 4.554 13.578
Control variables NFDIt1 CINt1
Std. Error 0.070 0.051
t-statistics -20.846 4.008
Coefficients PCGDPGt1
Std. Error 0.631***
t-statistics 0.082
7.695
Diagnostic tests Ad.R2 BPG BG JB Remesy CUSUM CUSUMSQ
0.999 21.436 0.434 0.818 0.331 Stable Stable
[0.645] [0.514] [0.764] [0.551]

Notes: ***,**,* present significance at 1%, 5%, and 10%, respectively. (þ) positive partial sum, (-) negative partial sum. Sample size adjusted from 2003Q1 to 2019Q1.
AIC: Akaike information criterion, INT: Real interest rate, TL: Total liquidity, MC: Market capitalization, SMT: Stock market turnover, ST: Total stock traded, NFDI: Net
foreign direct investments, CIN: Capital investments, BPG: Bresch Pegan Godfrey, BP: Bruesch Pegan, JB: Jarque-Berra.

8
M.N. Azimi Heliyon 8 (2022) e08794

value is used to measure the explanation of the dataset variance, rather consistent with recent empirical works (see, for instance, D€ okmen et al.,
than the predictive capacity of the NARDL model. The p-values for BPG, 2015), which discovered that market capitalization has a significantly
BG, JB, and Remesy are 0.645, 0.434, 0.818, and 0.331 respectively, positive impact on economic growth. This triggers that countries with
greater than 5% significance, indicating that the estimated results do not higher market capitalization are linked with faster economic growth and
suffer from heteroscedasticity, serial correlation, and abnormal distri- output. With the stock market turnover, the short-run asymmetric effects
bution of the residuals. are significant. The results reveal that by positive and negative partial
Table 9 reports the short-run and long-run asymmetric effects of sums, economic growth increases by 0.009% and 0.019%, respectively.
capital and money market variables on economic growth using the Lastly, the total stock traded exhibits significance both for short and long
asymmetric ARDL model. For the short run asymmetries of money mar- runs. The results show that positive and negative partial sums decrease
ket indicators, the positive partial sum of squares of the money market economic growth by 0.016% and 0.037% in the short-run and by 0.021%
rate decreases economic growth by 0.215%, while its negative shocks and 0.023% in the long-run. For brevity, except for capital market vari-
increase economic growth by 0.232%. Unlike the assumptions, the pos- ables that are significantly asymmetric in the long run, all money market
itive partial sum of real interest rates spurs economic growth by 0.154%, indicators are only significantly asymmetric in the short run. Since the
while its negative partial sum decreases economic growth by 0.163% in asymmetric ARDL model used in the present study is based on the con-
the short-run. With total liquidity, the positive partial sum shows that an ditional error-correcting method, its results are also computed and re-
increase in total liquidity causes economic growth to increase by 0.192%, ported in the rear part of Table 9. Besides the significant coefficient of the
while its negative partial sum suppresses economic growth by 0.141%. ECT (error-correcting term) that reconfirms the cointegration among the
According to Levine (2003) there is a strong nexus between stock market series, it also shows that the short-run asymmetries are restored to their
liquidity and economic growth, as higher stock market liquidity improves long-run equilibrium by an adjusting speed of 0.056 per quarter. All the
economic growth both in the short and long runs. Since long-run asym- results obtained and reported in Table 9 are spurious-free and statistically
metries of money market indicators are insignificant, the present study validated. As an instance, the adjusted r-squared is 0.999, meaning that
ignores their interpretations. independent variables explain the dependent variable by 99.9%, which is
In terms of capital market indicators, for short-run asymmetries, an indication of a high goodness of fit. The corresponding p-values for
market capitalization shows significant asymmetric effects. It indicates BPG, BG, and JB are greater than 5% respectively, indicating that the
that both positive and negative partial sum of squares of market capi- model does not suffer from heteroscedasticity, serial correlation, and
talization increase economic growth by 0.037% and 0.044% respec- abnormal residual distribution. Next, the variance decomposition of the
tively, while for the long-run asymmetries, the results indicate that dependent variable is analyzed to trace out the proportion of the
positive and negative partial sums of squares of market capitalization dependent variable explained by money and capital markets predictors.
increase economic growth by 0.039% and 0.051% respectively. This is The results are reported in Table 10.
Table 10 presents the variance decomposition of the dependent var-
iable PCGDPG. The results show that in the short-run, say, in the first
quarter, the dependent variable explains itself by 100% while in the
Table 9. Shor-run and long-run asymmetries. following quarters, it reduces to 23.25%. Moreover, the results indicate
Dependent Short-run asymmetries: Long-run asymmetries: AIC that from the second quarter onward, the MMR has a relatively fair in-
variable: Per AIC fluence on economic growth in the runs ranging from 0.664% to 2.97%.
capita GDP Among all the other regressors, market capitalization is shown to have a
Coefficients t-statistics Coefficients t-statistics
growth
stronger influence on economic growth. From the second quarter on-
PCGDPGt1 0.631*** 7.695
ward, it influences the dependent variable by 0.02%, while it exhibits
Money market variables 35.969% in the 9th and 40.637% influence in the 10th quarter. The sec-
ΔMMRþ
t1 -0.215 -5.955*** MMRþ
t1 -0.073 -0.661 ond most influential regressor is total liability, which is shown to have a
ΔMMR
t1 0.232 6.220*** MMR
t1 0.079 0.771 strong influence on economic growth. The same results are presented in
ΔINTþ
t1 0.154 2.946*** INTþ
t1 0.002 0.024 Figure 1.
ΔINT
t1 -0.163 -2.938*** INT
t1 -0.010 -0.044 In addition, this study depicts the execution of recursive CUSUM and
ΔTLþ
t1 0.192 17.709*** TLþ
t1 -0.011 -0.101 CUSUMSQ tests against the breakpoints to test the null hypothesis of
ΔTL -0.141 -5.340*** TL -0.042 -0.310 unstable parameters. The CUSUM and CUSUMSQ results are plotted in
t1 t1

Capital market variables Figure 2. At 5% significance, the residuals are shown to be within the
ΔMCþ 0.037 9.702*** MCþ 0.039 3.892***
bounds and thus confirm the stability of the parameters in the model (see
t1 t1
for instance: Brown et al., 1975). Moreover, to test for any potential
ΔMC
t1 0.044 22.859*** MC
t1 0.051 10.263***
endogeneity issue, the present study computes the Granger causality test
ΔSMTþ
t1 0.009 4.161*** SMTþ
t1 0.015 1.671
and reports the results in annex A1, Table 11. The results show that there
ΔSMT 0.019 11.555*** SMT 0.010 2.398**
t1 t1
is no causality running from the PCGDPG to any of the explanatory
ΔSTþ
t1 -0.016 -4.991*** STþ
t1 -0.021 -1.89*
variables. This implies that the statistical results do not suffer from any
ΔST
t1 -0.037 -13.214*** ST
t1 -0.023 -3.307*** endogeneity problem.
Control variables Finally, it is essential to investigate the dynamic multiplier behavior
NFDIt-1 1.279 7.422*** of the temporal dynamics of economic growth to account for the milieus
CIN t-1 -0.110 -0.817 devised by short-run dynamics and the primary disequilibrium due to the
Diagnostic tests ECT BPG BG JB Remesy shocks to capital and money market indicators. One can note that the
Ad. R2 rejection of the null hypothesis presented by the results in Table 5 in-
0.999 -0.056*** 23.643 0.843 0.189 0.109 dicates that there is an initial cointegration among the series. Therefore,
Notes: ***,**,* present significance at 1%, 5%, and 10%, respectively. (þ) pos- exploring the dynamic multipliers provides more insights into the sta-
itive partial sum, (-) negative partial sum. Sample size adjusted from 2003Q1 to tistical validity of the asymmetric results reported in Table 7. Therefore,
2019Q1. AIC: Akaike information criterion, INT: Real interest rate, TL: Total Figure 3 indicates that a standard deviation shock of both positive and
liquidity, MC: Market capitalization, SMT: Stock market turnover, ST: Total stock negative partial sums has a reversible impact on economic growth both in
traded, NFDI: Net foreign direct investments, CIN: Capital investments, ECT: the short and long runs. Moreover, Figure 4 shows the counter-behavior
Error-correcting model, BPG: Bresch Pegan Godfrey, BP: Bruesch Pegan, JB: of economic growth towards both positive and negative shocks of stock
Jarque-Berra. market turnover in spurring economic growth both in the short and long

9
M.N. Azimi Heliyon 8 (2022) e08794

Table 10. Variance decomposition results.

Period: Quarterly S.E. PCGDPG MMR INT TL MC SMT ST NFDI CIN

1 0.200 100.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
2 0.335 98.494 0.664 0.301 0.079 0.020 0.033 0.078 0.117 0.211
3 0.423 93.721 0.736 1.373 2.071 0.648 0.148 0.511 0.122 0.666
4 0.495 81.940 0.659 3.028 8.779 3.194 0.400 0.953 0.100 0.942
5 0.579 65.642 1.731 4.406 17.534 8.035 0.789 0.814 0.198 0.847
6 0.671 51.197 3.047 4.999 23.305 14.467 1.278 0.716 0.343 0.644
7 0.760 40.533 3.624 4.803 24.910 21.858 1.844 1.443 0.476 0.504
8 0.845 32.887 3.572 4.070 23.597 29.402 2.463 2.952 0.630 0.422
9 0.927 27.356 3.283 3.434 20.928 35.969 3.083 4.705 0.869 0.368
10 1.008 23.250 2.972 3.692 18.041 40.637 3.626 6.192 1.256 0.330

Notes: Sample size adjusted from 2003Q1 to 2019Q1. PCGDPG: Per capita GDP growth, INT: Real interest rate, TL: Total liquidity, MC: Market capitalization, SMT: Stock
market turnover, ST: Total stock traded, NFDI: Net foreign direct investments, CIN: Capital investments, SE: Standard error.

100 .04
Total stock traded on per capita real income

80 .03

60 .02

40 .01

20 .00

-.01
0
1 2 3 4 5 6 7 8 9 10
PCGDPG MMR INT TL MC -.02
SMT ST NFDI CIN 15:3 15:4 16:1 16:2 16:3 16:4 17:1 17:2 17:3 17:4 18:1 18:2 18:3 18:4 19:1
(+) shock (-) shock Asymmetry CI for asymmetry
Figure 1. Variance decomposition of PCGDPG.
Figure 3. Dynamic multiplier; total stock traded on per capita real income.
runs. Reading through Figure 5 reveals that a positive standard deviation Note: 95% confidence interval bootstrap is based on 65 replications.
shock from total liquidity improves economic growth in the short run,
whereas economic growth shows diminishing behavior against both than bank-based financial systems such as Japan and Germany, and this
positive and negative standard deviation shocks from total liquidity in has generally been respected as evidence of the market's superiority in
the long run. One can see in Figure 6 that both negative and positive the financial system. Although spectators sometimes refer to the "finan-
shocks from the money market rate spur economic growth, while market cial revolution" driven by the rise of the US venture capital market,
capitalization exerts a positive asymmetric impact on economic growth China's financial structure is often seen as not favorable to economic
both in the short and long runs (see Figure 7). Lastly, Figure 8 presents growth. Recent empirical works on this issue have spurred policy ini-
the results of the dynamic multiplier for the response of economic growth tiatives aimed at supporting the market-based financial system in China.
to positive and negative shocks. The results show that economic growth According to Shobande and Shodipe (2021), it is important that policy-
has reverted behavior against both positive and negative shocks from real makers formulate national monetary policies to respond to financial and
interest rates. macroeconomic variables that ease financial integration and provide
Comparatively, in the past ten years, market-based financial systems responses to the international orders that release economics shocks
such as the United States and the United Kingdom have performed better through the international financial frameworks.

15 1.4
NARDL CUSUM NARDL CUSUMSQ
5% Significance 1.2 5% Significance
10
1.0

5 0.8

0.6
0
0.4

-5 0.2

0.0
-10
-0.2

-15 -0.4
2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019

Figure 2. CUSUM and CUSUMSQ test results.

10
M.N. Azimi Heliyon 8 (2022) e08794

.015
Stock market turnover on per capital real income
.010

.005

.000

-.005

-.010

-.015

-.020
15.3 15.4 16.1 16.2 16.3 16.4 17.1 17.2 17.3 17.4 18.1 18.2 18.3 18.4 19.1
(+) shock (-) shock Asymmetry CI for asymmetry

Figure 4. Dynamic multiplier; stock market turnover on per capita real income. Note: 95% confidence interval bootstrap is based on 65 replications.

.4
.04
Total liquidity on per capita real income Market capitalization on per capita real income
.03
.3
.02

.01
.2
.00

-.01
.1
-.02

.0 -.03

-.04

-.1 -.05
15:3 15:4 16:1 16:2 16:3 16:4 17:1 17:2 17:3 17:4 18:1 18:2 18:3 18:4 19:1 15.3 15.4 16.1 16.2 16.3 16.4 17.1 17.2 17.3 17.4 18.1 18.2 18.3 18.4 19.1
(+) shock (-) shock Asymmetry CI for asymmetry (+) shock (-) shock Asymmetry CI for asymmetry

Figure 5. Dynamic multiplier; total liquidity on per capita real income. Note: Figure 7. Dynamic multiplier; market capitalization on per capita real income.
95% confidence interval bootstrap is based on 65 replications. Note: 95% confidence interval bootstrap is based on 65 replications.

.0 .5
Money market rate on per capita real income Real interest rate on per capita real income

-.1 .4

-.2 .3

-.3 .2

-.4 .1

-.5 .0

-.6 -.1
15.3 15.4 16.1 16.2 16.3 16.4 17.1 17.2 17.3 17.4 18.1 18.2 18.3 18.4 19.1 15.3 15.4 16.1 16.2 16.3 16.4 17.1 17.2 17.3 17.4 18.1 18.2 18.3 18.4 19.1
(+) shock (-) shock Asymmetry CI for asymmetry (+) shock (-) shock Asymmetry CI for asymmetry

Figure 6. Dynamic multiplier; money market rate on per capita real income. Figure 8. Dynamic multiplier; real interest rate on per capita real income. Note:
Note: 95% confidence interval bootstrap is based on 65 replications. 95% confidence interval bootstrap is based on 65 replications.

11
M.N. Azimi
5. Conclusions
This study explores the asymmetric effects of capital and money
markets' indicators on economic growth in China using the non-linear
ARDL method. The non-linearity approach to testing the short-run and
long-run effects is based on the fact that linear assumptions in a non-linear
combination of indicators do not provide sufficient and statistically valid
evidence to ascertain the effects of finance on economic growth. To test
this hypothesis, the present study uses a set of time series data relevant to
China's economy for the period from 2003Q1 to 2019Q1 collected from
WDI (World Development Indicators). The primary data analysis reveals
that the per capita GDP growth, capital market, money market, and control
variables are I(0) and I(1) without any I(2) series. Further analysis shows
that there is a significant long-run bound amid finance and economic
growth. Using the Wald test, the results confirm that capital and money
market indicators asymmetrically and differently impact economic
growth both in the short and long runs. This study employs the non-linear
ARDL model based on a conditional error-correcting mechanism to test the
research hypothesis, which is the asymmetric effects of capital and money
market indicators on economic growth in China.
The results indicate that except for capital market indicators, namely,
market capitalization, stock market turnover, and the total stock traded
that exhibit asymmetric long-run effects on economic growth, all other
indicators, both for money market and capital market variables are
significantly asymmetric in impacting economic growth in the short-run.
The most critical results of the present study support the financial supply-
led assumptions based on significant results of the short-run asymmetries
that can attract sound financial projects leading to sustainable and long-
run economic growth. This is also based on the fact that the error-
correction results show a -0.056, say, 5.6% quarterly speed of adjust-
ment of the short-run asymmetries to long-run equilibrium.
The critical findings of this study imply important policy implications
for China. It is worth emphasizing that financial market development
asymmetries are mostly determined by the size and functions of the
money and capital markets. Broadly, these are the elements of China's
enabling environment, which are more closely linked to capital and
money market functions to boost economic growth. Sustained growth, a
broad respect for market sovereignty, an effective and equitable legal
system, and an efficient and appropriate regulatory environment are all
elements that contribute to the development of financial markets and the
creation of optimal circumstances for financial transactions. Other fac-
tors that are discussed herein are more concerned with maintaining the
financial sector's independence and international financial frameworks
that transfer shocks to China's economy.
Therefore, on the policy front, based on the critical findings of this
study, the following set of policy measures are recommended:
i. Considering the asymmetric impact of financial indicators on
economic growth, the findings suggest that controlling for interest
rates, sustainable money market rates, maintaining sufficient
market liquidity, and supporting stock market trade by adjusting
the existing regulations, taxation, and spending programs can
further boost economic growth in the long run.
ii. Moreover, policies that support the reduction of interest rates by
boosting short-run market activity would be noteworthy for sus-
tainable long-run economic growth.
iii. As the reduction in interest rates spurs growth, effective policies to
offset the high liquidity negativities in the market should also be
put forward to heighten the financial system's integration.
iv. Unlike the assumptions, the stock market turnover confirms
growth suppression. It might be due to limited market liber-
alization in China and the limitation of permissions for qualified
international investors to trade liberally in the market. Boosting
booming economic growth implies liberalizing stock market trade
and readjusting type A, B, and H share trades in China, or these
results could be achieved as data guided.
12
Heliyon 8 (2022) e08794
v. Lastly, equity finance is one of the major factors driving economic
growth. Policies that can foster market development should also
be put in place in China.
Declarations
Author contribution statement
Mohammad Naim Azimi: Conceived and designed the experiments;
Performed the experiments; Analyzed and interpreted the data;
Contributed reagents, materials, analysis tools or data; Wrote the paper.
Funding statement
This research did not receive any specific grant from funding agencies
in the public, commercial, or not-for-profit sectors.
Data availability statement
Data associated with this study has been collected from the World
Bank, World Development Indicators (WDI) (https://databank.worldba
nk.org/).
Declaration of interests statement
The authors declare no conflict of interest.
Additional information
Supplementary content related to this article has been published
online at https://doi.org/10.1016/j.heliyon.2022.e08794.
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