Premium
Financial Development and Economic Growth: An Egg‐and‐Chicken Problem?
Author(s) -
Shan Jordan Z.,
Morris Alan G.,
Sun Fiona
Publication year - 2001
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00291
Subject(s) - economics , vector autoregression , causality (physics) , granger causality , china , econometrics , autoregressive model , macroeconomics , financial market , finance , physics , quantum mechanics , political science , law
This study uses a Granger causality procedure to investigate the relationship between financial development and economic growth. The authors estimate a vector autoregression (VAR) model for nine OECD countries and China. They argue that a time‐series approach is superior to a cross‐sectional one and that the VAR framework avoids technical problems common in other time‐series models. Evidence is presented of bidirectional causality between financial development and growth in half of the countries and reverse causality in three others. There is little support for the hypothesis that finance “leads” growth, and caution must be exercised in making general conclusions about this relationship.