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Where enterprise leads, finance follows. In-sample and out-of-sample evidence on the causal relation between finance and growth

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  • Matthias Hartmann

    ()
    (Institute of Statistics and Econometrics, Christian-Albrechts-Universität zu Kiel, Germany)

  • Helmut Herwartz

    ()
    (Institute of Statistics and Econometrics, Christian-Albrechts-Universität zu Kiel)

  • Yabibal M. Walle

    ()
    (Institute of Statistics and Econometrics, Christian-Albrechts-Universität zu Kiel)

Abstract

Evidence on the causality between finance and growth is largely inconclusive. In this study, a large cross-sectional data set of 74 economies for the period between 1975 and 2005 is examined. We summarise evidence from in-sample and out-of-sample causality tests based on rolling estimation steps. It is found that growth impacts on financial development in a stronger way than vice versa. These findings are consistent if economies are categorised into distinct income groups.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 1 ()
Pages: 871-882

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Handle: RePEc:ebl:ecbull:eb-12-00161

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Keywords: Finance-growth nexus; Granger causality; directional accuracy;

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