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The Relationship between Financial Development and Economic Growth: Empirical Evidence from 27 European Union Countries

Author

Listed:
  • Palcau Teodora

    (Babes-Bolyai University, Romania)

  • Silaghi Monica Ioana Pop

    (Babes-Bolyai University, Romania)

Abstract

The present study focuses on the relationship between financial development and economic expansion in the European Union (EU) countries. We compare three different periods: the years before the financial crisis, the years affected by the crisis, and the post-crisis period. Using the System Generalized Method of Moments estimator alongside Granger causality tests, the results reveal a bidirectional causality between finance and growth before the financial crisis. During and after the crisis, financial development Granger causes economic growth only unidirectionally. The strongest positive impact of financial development on growth is observed after the crisis.

Suggested Citation

  • Palcau Teodora & Silaghi Monica Ioana Pop, 2025. "The Relationship between Financial Development and Economic Growth: Empirical Evidence from 27 European Union Countries," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 70(2), pages 79-91.
    • Handle: RePEc:vrs:subboe:v:70:y:2025:i:2:p:79-91:n:1005
    DOI: 10.2478/subboec-2025-0011
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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