Document Type : ORIGINAL ARTICLE
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Abstract
There are different perspectives about the relationship between financial development and economic growth. The question has raised among economists is that whether the economic growth is affected by financial development or economic growth causes financial development? This study investigates the direction of causality between financial markets indicators and economic growth in the D8 countries group during 1990-2010. For this, the panel causality testing approach, the method developed by Kónya (2006) based on the seemingly unrelated regressions (SUR) and Wald tests with the country specific bootstrap critical values, is applied. The results indicate that the direction of causality between financial development and economic growth not only is different in countries also, it is different for the each indicator of financial development. Empirical results show that within the financial development indicators, The domestic credit provided by the banking sector in all of selected countries except Pakistan, has affected the economic growth. This indicates a higher degree of dependence of these countries upon the banking sector. Furthermore, within the money market indicators, the domestic credit to private sector indicator has the greatest influence from economic growth.
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