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Financial and economic development link in transitional economies: a spectral Granger causality analysis 1991–2017

Author

Listed:
  • Marinko Skare

    (Juraj Dobrila University of Pula, Croatia)

  • Malgorzata Porada-Rochon

    (University of Szczecin, Poland)

Abstract

Research background: The relationship between financial development and economic growth has been attracting attention in the field of economics since the times of the “great moderation”. Previous empirical studies still fail to put forward a general conclusion on whether and how financial development affects economic growth. This is particularly true due to the lack of empirical research on the matter in question for countries in transition. Purpose of the article: This study aims to contribute to bridging the gap in the financial development-growth nexus in transitional economies. Understanding the mechanism behind financial development and economic growth should assist policymakers in the design of efficient economic policies or avoiding/alleviating financial cycles. Methods: Using Granger causality test in frequency domain, which shows to have more power over standard time domain Granger causality test, as well as gross domestic product (GDP) and the monetary base (M2 — intermediate money), we investigated the finance-growth relationship in 19 Central, East, and Southeast European countries (CESEE) from 1991 to 2017. Findings & Value added: Study results show that financial development is important for growth in CESEE countries, thus supporting the “supply-leading” theories in general for countries in the sample. Our findings indicate that the relationship between financial development and economic growth exists in CESEE countries (with one exception — the Czech Republic) ranging from unidirectional (Albania, Bosnia and Hercegovina, Belarus, Estonia, Macedonia, Russia, Turkey), to bi-directional spectral Granger causality (Bulgaria, Croatia, Hungary, Kazakhstan, Latvia, Lithuania, Poland, Romania, Slovenia, Slovakia, Ukraine).

Suggested Citation

  • Marinko Skare & Malgorzata Porada-Rochon, 2019. "Financial and economic development link in transitional economies: a spectral Granger causality analysis 1991–2017," Oeconomia Copernicana, Institute of Economic Research, vol. 10(1), pages 7-35, March.
    • Handle: RePEc:pes:ieroec:v:10:y:2019:i:1:p:7-35
    DOI: 10.24136/oc.2019.001
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    12. Michał Bernard Pietrzak & Bartłomiej Igliński & Wojciech Kujawski & Paweł Iwański, 2021. "Energy Transition in Poland—Assessment of the Renewable Energy Sector," Energies, MDPI, vol. 14(8), pages 1-23, April.
    13. Adil Saleem & Judit Sági & Budi Setiawan, 2021. "Islamic Financial Depth, Financial Intermediation, and Sustainable Economic Growth: ARDL Approach," Economies, MDPI, vol. 9(2), pages 1-22, April.

    More about this item

    Keywords

    financial development; economic growth; transition; spectral Granger causality;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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