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Stock Markets, Banks and Long Run Economic Growth: A Panel Cointegration-Based Analysis

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  • Laurent Cavenaile
  • Christian Gengenbach

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  • Franz Palm

    ()

Abstract

The aim of this paper is to investigate the long run relationship between the development of banks and stock markets and economic growth. We make use of a Johansen-based panel cointegration methodology allowing for cross-country dependence to test the number of cointegrating vectors among these three variables for 5 developing countries. In addition, we test the direction of potential causality between financial and economic development. Our results conclude to the existence of a single cointegrating vector between financial development and growth and of causality going from financial development to economic growth. We find little evidence of reverse causation as well as bi-directional causality. We interpret this as evidence supporting the significance of financial development for economic development although banks and stock markets may have different effects depending on the level of economic development. Copyright Springer Science+Business Media New York 2014

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  • Laurent Cavenaile & Christian Gengenbach & Franz Palm, 2014. "Stock Markets, Banks and Long Run Economic Growth: A Panel Cointegration-Based Analysis," De Economist, Springer, vol. 162(1), pages 19-40, March.
  • Handle: RePEc:kap:decono:v:162:y:2014:i:1:p:19-40
    DOI: 10.1007/s10645-013-9220-6
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    Cited by:

    1. Shrutikeerti Kaushal & Amlan Ghosh, 2016. "Financial Institutions and Economic Growth: An Empirical Analysis of Indian Economy in the Post Liberalized Era," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1003-1013.
    2. Pradhan, Rudra P. & Arvin, Mak B. & Ghoshray, Atanu, 2015. "The dynamics of economic growth, oil prices, stock market depth, and other macroeconomic variables: Evidence from the G-20 countries," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 84-95.
    3. Eduard Baitinger & Christian Fieberg & Thorsten Poddig & Armin Varmaz, 2015. "Liquidity-driven approach to dynamic asset allocation: evidence from the German stock market," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 29(4), pages 365-379, November.
    4. repec:spr:fininn:v:3:y:2017:i:1:d:10.1186_s40854-017-0070-0 is not listed on IDEAS

    More about this item

    Keywords

    Banks; Stock markets; Economic growth; Panel cointegration; Causality; E44; G20; O43;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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