Financial development and economic growth : an empirical investigation of three European Union Member - countries

Abstract

Purpose: This paper investigates the relationship between financial development and economic growth for three European Union member countries, Greece, Ireland and UK. Design/Methodology/Approach: For this reason the existence of the long-run relationship between these variables applying the cointegration analysis is examined as suggested by Johansen and Juselious. Findings: Granger causality tests based on a vector error correction model (VECM) indicated that there is a causal relationship between financial development and economic growth in the three European Union’s member countries. Practical Implications: The Vector Error Correction specification forces the long-run behaviour of the endogenous variables to converge to their cointegrating relationships, while accommodates the short-run dynamics. Originality/Value: The study offers an in-depth insight into econometric modelling of economic growth.