THE CAUSALITY RELATIONSHIP BETWEEN FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH: A MULTI – COUNTRY TIME SERIES ANALYSIS

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In this paper, the linkages between financial development and economic growth in selected 44 countries are investigated by using cointegration and causality tests within the context of time series analysis in the period 1980 – 2011. To measure the financial development four proxy variables are used and for the economic growth the percent changes of GDP with constant prices are taken into consideration. The results of the Johansen cointegration analysis show that the cointegration relationship between the financial development and economic growth is detected for some countries, except for Austria, Barbados, Denmark, Hong – Kong, Israel and UAE. In addition, the findings of Granger causality analysis indicate that the causality relationship is valid in the total of 31 countries, the three of them are Austria, Denmark and UAE in which the long – run relations cannot be reached. Besides, the bidirectional causality nexus among the variables is obtained in Finland, Poland and UAE. As a whole, it is possible to say that the view of demand following is valid for some country group, while the supply leading phenomenon is valid for the other country group.

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Financial Development , Economic Growth , Johansen Cointegration Analysis , Granger Causality Analysis

Journal Of Financial Researches an‎d Studies

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Journal Of Financial Researches an‎d Studies