Finance as a driver of growth? Evidence from EU countries

Iuliana Matei

Revue d'économie politique, 2014, vol. 124, issue 4, 571-586

Abstract: This paper studies the dynamic causal relationships between the government bond market and economic growth in the case of European Union (EU) countries (16 EMU?s countries and 10 non-EMU?s countries). To address this question, we consider panel vector error correction models (VECM), including the Pool Mean Group (PMG) and Mean Group (MG) estimators (Pesaran and Smith [1995], Pesaran, Shin and Smith [1999]). We estimate our models with quarterly data over the period 2002-2012. We find evidence only in favor of a long-run bidirectional causality between finance (via bond market) and economic growth (sustaining both the supply leading and the demand following views). However, the relationship from finance to growth seems to be stronger than from growth to finance in all countries of the panel. Findings are robust to various specifications, the use of different set of periods and econometric techniques.

Keywords: bond markets; economic growth; panel vector error correction (search for similar items in EconPapers)
Date: 2014
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