Economic growth, institutional quality and financial development in middle-income countries

Laura Heras Recuero () and Roberto Pascual González ()
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Roberto Pascual González: Banco de España

No 1937, Working Papers from Banco de España

Abstract: This paper aims to investigate the relationship between economic growth, institutional quality and financial development whitin a sample of middle-income countries. We generate three hypothesis on the potential relationships between those three dimensions by reviewing the existing literature and test them in the framework of a Panel Vector Autoregressive (PVAR) model. The main results, derived from the Impulse Response Function (IRF) analysis, are two-fold. First, we find a unidirectional positive relationship from economic growth to financial development. Second, institutional quality and economic growth are positively related but the causality direction depends on the nature of the institutional quality proxies. Legal institutional quality has an impact on economic growth while the latter causes an improvement in public sector institutional quality.

Keywords: economic growth; economic convergence; institutional quality; financial development (search for similar items in EconPapers)
JEL-codes: O11 O16 O43 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2019-11
New Economics Papers: this item is included in nep-fdg and nep-gro
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1937

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