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

Author

Listed:
  • 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.

Suggested Citation

  • Matthias Hartmann & Helmut Herwartz & Yabibal M. Walle, 2012. "Where enterprise leads, finance follows. In-sample and out-of-sample evidence on the causal relation between finance and growth," Economics Bulletin, AccessEcon, vol. 32(1), pages 871-882.
    • Handle: RePEc:ebl:ecbull:eb-12-00161
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    References listed on IDEAS

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    Cited by:

    1. Ashenafi Beyene Fanta, 2015. "The Finance-Growth Nexus: Evidence from Emerging Markets," Journal of Economics and Behavioral Studies, AMH International, vol. 7(6), pages 13-23.

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    More about this item

    Keywords

    Finance-growth nexus; Granger causality; directional accuracy;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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