Financial Development and Economic Activity in Advanced and Developing Open Economies: Evidence from Panel Cointegration

15 Pages Posted: 28 Jan 2015

See all articles by Georgios E. Chortareas

Georgios E. Chortareas

University of Athens - Faculty of Economics; University of Essex - Department of Accounting, Finance & Management; King's College London

Georgios Magkonis

University of Bradford

Demetrios Moschos

National and Kapodistrian University of Athens - Faculty of Economics

Theodore Panagiotidis

University of Macedonia - Department of Economics

Date Written: February 2015

Abstract

This study considers the effects of financial development on output in a panel cointegration framework, focusing on the implications of trade and financial openness. Our analysis indicates that after controlling for cross‐sectional dependence, the typical relationship between finance and output does not hold in the long run. This relationship, however, is re‐established once we account for economic openness. While trade openness emerges as more important for developing countries, financial openness is more important for advanced economies. In the long run, causality runs from financial development to output in the advanced economies, while in developing economies causality is bidirectional. There is no short‐run causality between financial development and output, however.

Suggested Citation

Chortareas, Georgios and Magkonis, Georgios and Moschos, Demetrios and Panagiotidis, Theodore, Financial Development and Economic Activity in Advanced and Developing Open Economies: Evidence from Panel Cointegration (February 2015). Review of Development Economics, Vol. 19, Issue 1, pp. 163-177, 2015. Available at SSRN: https://ssrn.com/abstract=2556613 or http://dx.doi.org/10.1111/rode.12132

Georgios Chortareas (Contact Author)

University of Athens - Faculty of Economics ( email )

8 Pesmazoglou street
GR-10559 Athens
Greece
+(30) 210 3689805 (Phone)
+(30) 210 3689810 (Fax)

University of Essex - Department of Accounting, Finance & Management ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

King's College London ( email )

Strand
London, England WC2R 2LS
United Kingdom

Georgios Magkonis

University of Bradford

Bradford
Bradford, BD9 4JL
United States

Demetrios Moschos

National and Kapodistrian University of Athens - Faculty of Economics ( email )

8 Pesmazoglou street
GR-10559 Athens
Greece

Theodore Panagiotidis

University of Macedonia - Department of Economics ( email )

Thessaloniki, 54006
Greece

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