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ique to examine simultaneously the relationship between stock markets, banks and economic growth. They use M3/GDP as a measure of banking sector variable while stock market system is measured by market capitalization and total value traded. After examining the relationship on 47 countries using annual data from 1980-1995, their results indicate that both banks and stock markets promote economic growth.

Arestis et al. (2001) through quarterly time-series data, examine the relationship between stock market development and economic growth for five developed economies while controlling for the effect of banking system and market volatility. These countries are: USA, UK, France, Germany, and Japan. The period covered 1968-1998 although the data span is different for different countries in the sample. The variables used in the VAR framework include the real GDP, the ratio of market capitalization, domestic bank credit to private sector and stock market volatility .The results reveal that in Germany, there is bidirectional causality between banking system development and economic growth. Stock market on the other hand is weakly exogenous to the level of output. In the USA, financial development does not cause real GDP in the long-run. Japan exhibits bidirectional causality between both banking system and stock market and the real GDP while in the UK, the results indicate evidence of unidirectional causality from banking system to stock market development in the long-run but the causality between financial development and economic growth in the long-run is very weak. The evidence in France suggests that in the long-run both the stock market and banking system contribute to real GDP but the contribution of the banking system is much stronger.

Singh (2008) utilizes time series data for India to examine the relationship between financial development and economic growth for the period 1951-1952 to 1995-1996. Using bivariate VAR, impulse responses and variance decomposition their results suggest the existence of bidirectional causality between financial development and economic growth.

Handa and Khan (2008) also use time series data on 13 countries to test four causality hypotheses between financial development and economic growth. They utilize both banking and stock market variables to measure financial development. After applying Johansen procedure and Vector Error Correction (VEC) model the results show the existence of unidirectional causality from economic growth to financial development for Bangladesh, Sri Lanka, Brazil, Malaysia, Thailand and Turkey. Meanwhile, for Germany, Japan, India, Argentina, the UK and the USA they establish bidirectional causality between financial development and economic growth and no causality exists for Pakistan.

Studies by Levine and Zervos (1998) and Khan and Senhadji (2000) have been particularly informative due to the utilization of nested models and more detailed model specifications that consider separately the channels through which financial institutions and markets impact upon economic development. The findings of these studies suggest that a) stock markets and financial institutions are not necessarily competing in nature, but rather are complimentary with both potentially positively impacting on economic development, and b) the stock market has its greatest impact on economic development through its creation of liquidity. This finding acts as c