Financial Development and Economic Growth in European Countries: Bootstrap Causality Analysis


Abstract

In the present study, it was investigated whether there was a causality relationship between financial development and economic growth for sixteen European countries. Data from the period of 1988-2012 was analyzed using the bootstrap panel causality test, which takes cross-section dependence and heterogeneity into account. The results of the test showed that there was a strong causality relationship between financial development and economic growth in European countries. In European countries, there was a causality relationship from economic growth to financial development and from financial development to economic growth. These results support both the supply-leading and the demand-following hypotheses. Therefore, it can be said that the feedback hypothesis is valid for European countries.

Keywords: Financial development, economic growth, European countries, panel causality, bootstrap.

JEL Classification: C33, F43, O16, O52


How to Cite:

Lebe, F. (2016) Financial Development and Economic Growth in European Countries: Bootstrap Causality Analysis. Journal of Global Analysis, 6: 47-70.


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