On the finance-growth nexus: additional evidence from Central and Eastern Europe countries

Edoardo Gaffeo and Petya Garalova

Economic Change and Restructuring, 2014, vol. 47, issue 2, 89-115

Abstract: We investigate the finance-growth nexus for a sample of thirteen transition economies over the period 1995–2007 using panel cointegration tests and a panel error-correction model. By combining results for models with alternative dependent variables and several measures of financial development, we find that the relationship between financial deepening and real growth is largely positive in the long-run, and it develops its full potential when funds are directed towards private enterprises. In the short-run, however, the growth effects of an expansion of financial markets are weaker and negative, supporting the idea that financial development has also a dark side, as it exacerbates fragility and destabilizes the economy through recurrent crises. Copyright Springer Science+Business Media New York 2014

Keywords: Financial development; Economic growth; Panel causality; Transition countries; C33; O16; O52 (search for similar items in EconPapers)
JEL-codes: C33 O16 O52 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (20)

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DOI: 10.1007/s10644-013-9143-x

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