EMPIRICAL DATA FOR EUROPEAN TRANSITION COUNTRIES ON THE LINK BETWEEN FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH
Abstract
This study uses market capitalization and the banking industry to examine the relationship between financial development and economic growth between 2000 and 2022. This research employs multiple approaches, including OLS, fixed and random effects, and Hausman-Taylor with instrumental variables. Our study provided well-specified results, demonstrating that financial development is statistically significant and positively affects real GDP per capita in European transition countries. Consequently, financial development has positive effects on real GDP per capita as well as being necessary to promote economic growth. According to the analysis, real GDP per capita growth is negatively impacted by both the financial crisis and total liabilities. These findings suggest that when these countries face financial turmoil, it impedes their ability to sustain economic expansion; likewise, higher levels of liquid liabilities are associated with a reduction in real GDP per capita. As a result, our methodology in European transition nations sheds new light on the link between financial development, financial crises, and real GDP per capita growth and provides significant insights for policymakers seeking a deeper understanding. The study is unique in that it aims to shed light on how financial development affects the growth of real GDP per capita in transitional European nations. Central banks and policymakers will find value in the study's conclusions.
JEL: C23, G28, O16
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DOI: http://dx.doi.org/10.46827/ejefr.v8i3.1727
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