Stock Markets, Banks and Long Run Economic Growth: A Panel Cointegration-Based Analysis

33 Pages Posted: 24 Dec 2013

See all articles by Laurent Cavenaile

Laurent Cavenaile

University of Toronto - Rotman School of Management; University of Toronto at Scarborough

Christian Gengenbach

Maastricht University

Franz C. Palm

University of Maastricht - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 23, 2013

Abstract

The aim of this paper is to investigate the long run relationship between the development of banks and stock markets and economic growth. We make use of a Johansen-based panel cointegration methodology allowing for cross-country dependence to test the number of cointegrating vectors among these three variables for 5 developing countries. In addition, we test the direction of potential causality between financial and economic development. Our results conclude to the existence of a single cointegrating vector between financial development and growth and of causality going from financial development to economic growth. We find little evidence of reverse causation as well as bi-directional causality. We interpret this as evidence supporting the significance of financial development for economic development although banks and stock markets may have different effects depending on the level of economic development.

Keywords: banks, stock markets, economic growth, panel cointegration, causality

JEL Classification: E440, G200, O430

Suggested Citation

Cavenaile, Laurent and Gengenbach, Christian and Palm, Franz C., Stock Markets, Banks and Long Run Economic Growth: A Panel Cointegration-Based Analysis (December 23, 2013). CESifo Working Paper Series No. 4513, Available at SSRN: https://ssrn.com/abstract=2371226

Laurent Cavenaile

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

University of Toronto at Scarborough ( email )

1265 Military Trail
Scarborough, Ontario M1C 1A4
Canada

Christian Gengenbach

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Franz C. Palm (Contact Author)

University of Maastricht - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31-(0)43-3883833 (Phone)
+31-(0)43-3258535 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

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