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Financial Development and Economic Growth: Evidence from Ten New EU Members

Guglielmo Maria Caporale, Christophe Rault (), Robert Sova () and Anamaria Sova

No 940, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper reviews the main features of the banking and financial sector in ten new EU members, and then examines the relationship between financial development and economic growth in these countries by estimating a dynamic panel model over the period 1994-2007. The evidence suggests that the stock and credit markets are still underdeveloped in these economies, and that their contribution to economic growth is limited owing to a lack of financial depth. By contrast, a more efficient banking sector is found to have accelerated growth. Furthermore, Granger causality test indicate that causality runs from financial development to economic growth, but not in the opposite direction.

Keywords: Financial Development; Economic Growth; Causality Tests; Transition Economies (search for similar items in EconPapers)
JEL-codes: E44 E58 F36 P26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fdg and nep-tra
Date: 2009
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Working Paper: Financial Development and Economic Growth: Evidence from Ten New EU Members (2014) Downloads
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