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Bound Testing Approach for Cointegration and Causality Between Financial Development, Trade Openness and Economic Growth in Bulgaria

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  • Melina Dritsaki
  • Chaido Dritsaki

Abstract

: The purpose of this study is to examine the relationship between financial development, trade openness and economic growth in Bulgaria using cointegration analysis and Granger causality technique. The bounds testing approach to cointegration is used to establish the existence of long-run relationship between financial development, trade openness and economic growth. An augmented form of Granger causality analysis is implemented to identify the direction of causality among the variables both in the short run and the long run. The results from Granger causality tests based on multivariate error-correction model suggest unidirectional causation from financial development and trade openness to economic growth, as well as unidirectional causation from financial development and economic growth to trade openness in the long run. In the short run, a bidirectional causality between financial development and trade openness and a unidirectional causality running from economic growth to financial development is observed at 1% significance level.

Suggested Citation

  • Melina Dritsaki & Chaido Dritsaki, 2013. "Bound Testing Approach for Cointegration and Causality Between Financial Development, Trade Openness and Economic Growth in Bulgaria," The IUP Journal of Applied Economics, IUP Publications, vol. 0(1), pages 50-67, January.
    • Handle: RePEc:icf:icfjae:v:12:y:2013:i:1:p:50-67
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    Cited by:

    1. Nikolaos Dritsakis & Pavlos Stamatiou, 2016. "Trade Openness and Economic Growth: A Panel Cointegration and Causality Analysis for the Newest EU Countries," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 18(59), pages 45-60, March.

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