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


  • 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)


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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  • 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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    More about this item


    Finance-growth nexus; Granger causality; directional accuracy;

    JEL classification:

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


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