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Finance-Growth Nexus and the P-Bias. Evidence from OECD Countries

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  • Franz R. Hahn

    (WIFO)

Abstract

Recent studies provide new empirical evidence confirming that financial development is linked to economic growth in OECD countries. Using new dynamic panel regression techniques, these appraisals indicate that within the group of high‐income countries stock market size as a measure of financial advancement contributes significantly to overall economic activity. Applying the same advanced techniques, this paper questions this conclusion by showing that the findings of these studies seem to be not only not robust with respect to adding new observations but also likely to be plagued by a severe price bias which belittles the information content of the used financial indicator (stock market capitalization). We provide evidence that anticipative price effects (i.e. expectations of future growth, reflected in current stock prices) may be driving the statistical relationship between stock market activities and economic growth in high‐income countries to a much larger extent than recent analyses of the finance– growth link in OECD countries suggest.
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  • Franz R. Hahn, 2004. "Finance-Growth Nexus and the P-Bias. Evidence from OECD Countries," WIFO Working Papers 223, WIFO.
    • Handle: RePEc:wfo:wpaper:y:2004:i:223
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    Cited by:

    1. Nagmi Moftah Aimer, 2020. "Renewable energy consumption, financial development and economic growth: Evidence from panel data for the Middle East and North African countries," Economics Bulletin, AccessEcon, vol. 40(3), pages 2058-2072.
    2. Kulvinder Purewal & Hazwan Haini, 2022. "Re-examining the effect of financial markets and institutions on economic growth: evidence from the OECD countries," Economic Change and Restructuring, Springer, vol. 55(1), pages 311-333, February.
    3. Markus Marterbauer & Ewald Walterskirchen, 2005. "Einfluss der Haus- und Wohnungspreise auf Wirtschaftswachstum und Inflation," WIFO Studies, WIFO, number 25691.
    4. Franz R. Hahn, 2006. "Teilstudie 5: Der Einfluss der Finanz- und Kapitalmarktsysteme," WIFO Studies, WIFO, number 27444.
    5. Franz R. Hahn, 2006. "Finance-Growth Linkage and Risk Diversification. Evidence from OECD Countries," WIFO Working Papers 281, WIFO.
    6. Karl Aiginger & Gunther Tichy & Ewald Walterskirchen, 2006. "WIFO White Paper: Towards Higher Employment via Economic Growth Based on Innovation and Qualification. Summary," WIFO Studies, WIFO, number 28078.

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