Financial Deepening and Economic Growth in the European Transition Economies
Various effects of the financial deepening came to the centre of academics as well as policy-makers discussions during last four decades especially in relation to the financial sector development. Together with financial liberalization and international financial integration economists focus their attention to the financial deepening especially due to its potential effects on the real economy. Perspective of the fast and sustainable economic growth at the end of the 1990s increased an attractiveness of the European transition economies (ETE) for the foreign investors that resulted in increased foreign capital inflows to ETE. International capital inflows (especially debt and portfolio capital flows) stimulate financial deepening through higher demand for financial services. As the underdeveloped financial markets obviously constrain domestic capital mobilization, the international financial integration is considered to be very useful vehicle in fostering financial sector advancement. One of the most discussed areas related to the overall effects of the financial deepening is a bi-directional relationship between financial development and economic growth. It is generally expected there is a positive effect of financial development on economic growth. On the other hand especially some country-specific institutional characteristics and different policies may significantly distort positive incentives of the financial deepening. In the paper we analyze the main aspects of the financial deepening in ten ETE in the period 2000-2010 using vector error correction model (VECM). In order to meet this objective we implement a multivariate cointegration methodology introduced by Johansen (1988, 1991) and Johansen and Juselius (1990) to estimate the relationships between financial depth indicators and real output in the selected group of countries. To find the order of integration of endogenous variables we test the time series for the unit root presence. In order to determine cointegrating (long-run) relationships, we follow a Johansen cointegration procedure to perform the trace test and maximum eigenvalue test. We also test the direction of the causality relationships between financial depth indicators and real output using linear Granger causality test. Using the estimated VEC model, the dynamic responses of the endogenous variables to the money stock, domestic bank deposits and domestic bank loans one standard deviation shocks are computed for each country from the group of ETE.
|Date of creation:||Jun 2011|
|Date of revision:|
|Publication status:||Published in Journal of Applied Economic Sciences 2.6(2011): pp. 177-194|
|Contact details of provider:|| Postal: |
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thorsten Beck & Ross Levine & Norman Loayza, 1999.
"Financial Intermediation and Growth: Causality and Causes,"
Working Papers Central Bank of Chile
56, Central Bank of Chile.
- Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084 Central Bank of Chile.
- Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000. "Financial intermediation and growth: Causality and causes," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 31-77, August.
- Levine, Ross & Loayza, Norman & Beck, Thorsten, 1999. "Financial intermediation and growth : Causality and causes," Policy Research Working Paper Series 2059, The World Bank.
- Nicholas Apergis & Ioannis Filippidis & Claire Economidou, 2007. "Financial Deepening and Economic Growth Linkages: A Panel Data Analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(1), pages 179-198, April.
- Piotr MISZTAL, 2010.
"Foreign Direct Investments As A Factor For Economic Growth In Romania,"
Review of Economic and Business Studies,
Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 5, pages 39-53, June.
- Piotr Misztal, 2010. "Foreign Direct Investments, as a Factor for Economic Growth in Romania," Journal of Advanced Studies in Finance, ASERS Publishing, vol. 0(1), pages 72-82, June.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Abdelkarim Yahyaoui & Atef Rahmani, 2009. "Financial Development and Economic Growth: Role of Institutional Quality," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 327-357, September.
- Baltagi, Badi H. & Demetriades, Panicos O. & Law, Siong Hook, 2009.
"Financial development and openness: Evidence from panel data,"
Journal of Development Economics,
Elsevier, vol. 89(2), pages 285-296, July.
- Badi H. Baltagi & Panicos O. Demetriades & Siong Hook Law, 2008. "Financial Development and Openness: Evidence from Panel Data," Center for Policy Research Working Papers 107, Center for Policy Research, Maxwell School, Syracuse University.
- Vasilescu Laura GIURCA & Ana POPA, 2009. "Global FDI flows under the pressure of financial crisis," Journal of Applied Research in Finance Bi-Annually, ASERS Publishing, vol. 0(2), pages 105-112, December.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
- Engle, Robert F & Granger, Clive W J, 1987.
"Co-integration and Error Correction: Representation, Estimation, and Testing,"
Econometric Society, vol. 55(2), pages 251-76, March.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Khalifa Al-Yousif, Yousif, 2002. "Financial development and economic growth: Another look at the evidence from developing countries," Review of Financial Economics, Elsevier, vol. 11(2), pages 131-150.
- Christopoulos, Dimitris K. & Tsionas, Efthymios G., 2004. "Financial development and economic growth: evidence from panel unit root and cointegration tests," Journal of Development Economics, Elsevier, vol. 73(1), pages 55-74, February.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:33609. 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: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.