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The dynamic impacts of financial institutions on economic growth: Evidence from the European Union

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  • Wu, Jyh-Lin
  • Hou, Han
  • Cheng, Su-Yin
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    Abstract

    This paper investigates the dynamic impacts of financial institutions on economic growth based on a panel data set comprised of 13 countries in European Union (EU) over the period of 1976-2005. We found several important results. First, there exists a long-run equilibrium relationship among banking development, stock market development and economic development, and stock market capitalization and liquidity have positive long-run effects on economic development. Second, financial depth may have a negative long-run effect on real output, but improving risk diversification and information services of commercial banks results in stable economic development. Finally, stock market liquidity has a negative short-term influence on economic growth.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Macroeconomics.

    Volume (Year): 32 (2010)
    Issue (Month): 3 (September)
    Pages: 879-891

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    Handle: RePEc:eee:jmacro:v:32:y:2010:i:3:p:879-891

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    Web page: http://www.elsevier.com/locate/inca/622617

    Related research

    Keywords: Financial development Stock markets Credit markets Economic growth Panel mean group estimators Error-correction models Panel unit-root tests;

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    Cited by:
    1. Edoardo Gaffeo & Petya Garalova, 2014. "On the finance-growth nexus: additional evidence from Central and Eastern Europe countries," Economic Change and Restructuring, Springer, vol. 47(2), pages 89-115, May.
    2. M Mafizur Rahman & M Salahuddin, 2010. "The determinants of economic growth in Pakistan: Does stock market development play a major role?," Economic Issues Journal Articles, Economic Issues, vol. 15(2), pages 69-86, September.
    3. Cheng, Su-Yin, 2012. "Substitution or complementary effects between banking and stock markets: Evidence from financial openness in Taiwan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(3), pages 508-520.
    4. Polat, Ali & Shahbaz, Muhammad & Ur Rehman, Ijaz & Satti, Saqlain Latif, 2013. "Revisiting Linkages between Financial Development, Trade Openness and Economic Growth in South Africa: Fresh Evidence from Combined Cointegration Test," MPRA Paper 51724, University Library of Munich, Germany, revised 25 Nov 2013.
    5. Marques, Luís Miguel & Fuinhas, José Alberto & Marques, António Cardoso, 2012. "Interação entre o mercado acionista e o crescimento económico: Uma apreciação do caso português (1993-2010)
      [Interaction between the stock market and economic growth: An assessment of the Por
      ," MPRA Paper 39808, University Library of Munich, Germany.
    6. Su-Yin Cheng & Chia-Cheng Ho & Han Hou, 2014. "The Finance-growth Relationship and the Level of Country Development," Journal of Financial Services Research, Springer, vol. 45(1), pages 117-140, February.
    7. Çoban, Serap & Topcu, Mert, 2013. "The nexus between financial development and energy consumption in the EU: A dynamic panel data analysis," Energy Economics, Elsevier, vol. 39(C), pages 81-88.

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