IDEAS home Printed from
   My bibliography  Save this article

Finance-Growth Link In Oecd Countries: Evidence From Panel Causality And Cointegration Tests


  • Chrysost Bangake
  • Jude C Eggoh


In this paper we employ recently developed panel causality and cointegration techniques to examine the long-run relationship between financial development and economic growth of 25 OECD countries. Three measures of financial deepening and stock markets are respectively used. Our results point out a bidirectional causality between financial development and economic growth and support the point of view that although both banking sector and stock market could be a driving force of economic growth, the effects of the former are more powerful. The banking sector is the main channel through which financial development can affect economic growth. Furthermore, the effect of economic growth on stock market indices is more important compared to banking sector indicators. These results have some policy implications.

Suggested Citation

  • Chrysost Bangake & Jude C Eggoh, 2010. "Finance-Growth Link In Oecd Countries: Evidence From Panel Causality And Cointegration Tests," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 53(3/4), pages 375-392.
  • Handle: RePEc:bxr:bxrceb:2013/81138 Note: Special Issue "26th Symposium on Money, Banking and Finance" Guest Editors :Sébastien Galanti and Grégory Levieuge

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Nishimura, Kiyohiko G. & Nakajima, Takanobu & Kiyota, Kozo, 2005. "Does the natural selection mechanism still work in severe recessions?: Examination of the Japanese economy in the 1990s," Journal of Economic Behavior & Organization, Elsevier, vol. 58(1), pages 53-78, September.
    2. Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, vol. 67(5), pages 1057-1112, September.
    3. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    4. Hurlin, Christophe, 2006. "Network effects of the productivity of infrastructure in developing countries," Policy Research Working Paper Series 3808, The World Bank.
    5. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 879-907.
    6. Anindya Banerjee, 2001. "Industry structure and the dynamics of price adjustment," Applied Economics, Taylor & Francis Journals, vol. 33(15), pages 1889-1901.
    7. Gary Saxonhouse, 2005. "Good deflation/bad deflation and Japanese economic recovery," International Economics and Economic Policy, Springer, vol. 2(2), pages 201-218, November.
    8. Assar Lindbeck & Dennis J. Snower, 1989. "The Insider-Outsider Theory of Employment and Unemployment," MIT Press Books, The MIT Press, edition 1, volume 1, number 026262074x, July.
    9. Hans Genberg & LaurentL. Pauwels, 2005. "Wage-Price Dynamics And Deflation In Hong Kong," Pacific Economic Review, Wiley Blackwell, vol. 10(2), pages 191-216, June.
    10. Morrison, C J, 1994. "The Cyclical Nature of Markups in Canadian Manufacturing: A Production Theory Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(3), pages 269-282, July-Sept.
    11. Peng Xu, 2004. "Bankruptcy Resolution in Japan: Civil Rehabilitation vs. Corporate Reorganization," Discussion papers 04010, Research Institute of Economy, Trade and Industry (RIETI).
    12. Dobbelaere, Sabien, 2004. "Estimation of price-cost margins and union bargaining power for Belgian manufacturing," International Journal of Industrial Organization, Elsevier, vol. 22(10), pages 1381-1398, December.
    13. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
    14. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-666, September.
    15. Taimur Baig, 2003. "Understanding the Costs of Deflation in the Japanese Context," IMF Working Papers 03/215, International Monetary Fund.
    16. Lynne Cockerell & Bill Russell, 1995. "Australian Wage and Price Inflation: 1971-1994," RBA Research Discussion Papers rdp9509, Reserve Bank of Australia.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Financial development; Economic growth; Panel causality; Panel cointegration;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bxr:bxrceb:2013/81138. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benoit Pauwels). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.