Finance and growth: Time series evidence on causality

Abstract

Please cite this article as: Oana Peia, Kasper Roszbach, Finance and growth: time series evidence on causality, Journal of Financial Stability (2014), http://dx. AbstractThis paper re-examines the empirical relationship between financial and economic development while (i) taking into account their dynamics and (ii) differentiating between stock market and banking sector development. We study the cointegration and causality between finance and growth for 22 advanced economies. Our time series analysis suggests that causality patterns depend on whether countries' financial development stems from the stock market or the banking sector. We show that stock market development tends to cause economic development, while a reverse causality is mostly present between banking sector development and output growth.These findings indicate that the direction of causality between finance and growth is likely to be different at high levels of development. AbstractThis paper re-examines the empirical relationship between financial and economic development while (i) taking into account their dynamics and (ii) differentiating between stock market and banking sector development. We study the cointegration and causality between finance and growth for 22 advanced economies. Our time series analysis suggests that causality patterns depend on whether countries' financial development stems from the stock market or the banking sector. We show that stock market development tends to cause economic development, while a reverse causality is mostly present between banking sector development and output growth.These findings indicate that the direction of causality between finance and growth is likely to be different at high levels of development.

Causality between credit depth and economic growth: evidence from 24 OECD countries

“…11 There is little controversy between them regarding the limited presence of causality directed from credit depth to growth. However, in a sharp contrast to Peia and Roszbach (2014), this paper finds only negligible evidence for the causality running from growth to credit depth.…”

“…The findings of the paper can also be placed into the context of the literature that examines causality between financial structure and growth. Unlike Peia and Roszbach (2014), I assess causal relationships between credit depth and growth, omitting the potential impact of stock market development for data availability reasons. 11 There is little controversy between them regarding the limited presence of causality directed from credit depth to growth.…”

Financial Development and Economic Growth: A Meta‐analysis

“…Otherwise, stock markets are more supportive for growth. The results of Peia and Rozsbach () also suggest that banks and stock markets influence economic growth differently.…”

Examining the relationship between finance, institutions and economic growth: evidence from the ASEAN economies

“…However, the differences in the effectiveness of financial structures on economic growth suggests that there may be other factors that can affect this relationship, such as the institutional development of the country. For example, recent research has shown support for stock market development particularly for highly developed countries with strong institutions (Peia and Roszbach 2015). Furthermore, it is also suggested that advanced economies benefit more from market-based financial systems compared to less-developed countries, where bank-based financial systems affect growth more effectively due to lack of access to finance (Cull and Xu 2013).…”