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The relationship between financial development and growth: the case of emerging Europe

Alessio Ciarlone ()

No 521, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In this paper, I provide evidence about the impact that changes in certain indicators of financial development have on economic growth in a sample of 19 countries of Emerging Europe. Real per capita GDP growth, bank credit to the private sector, stock market capitalization and the outstanding stock of international debt securities – along with a series of other traditional determinants of economic development – are found to be co-integrated. By means of recent econometric techniques for heterogeneous panels, inference is drawn about the long- and short-run relationship between the variables of interest. The main result of the analysis points to the existence of non-linearities. There appears to be an inverted U-shaped relationship between bank credit to the private sector and economic growth. By contrast, both domestic stock market capitalization and the stock of international debt securities display a more traditional positive and monotone relationship with economic development.

Keywords: finance; economic growth; pooled mean group estimator; threshold effect; dynamic panel threshold; non-monotonicity; emerging Europe (search for similar items in EconPapers)
JEL-codes: C23 F43 G21 G23 O11 O16 O41 O47 P34 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-cfn, nep-fdg, nep-gro and nep-tra
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