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Financial and Economic  Development Link in Transitional Economies: A Spectral Granger Causality Analysis  1991-2017
  • Marinko Škare
Marinko Škare
Juraj Dobrila University of Pula
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Abstract

\ref{503602}Financial development and economic growth link attract attention in the field of economics since the times of the “great moderation”. Previous empirical studies still lack to put forward a general conclusion on if and how financial development impact economic growth. This particularly holds for lack of empirical research on the matter for countries in transition. This study aims to contribute to bridging the gap in the financial development - growth nexus in transitional economies. Understanding the mechanism behind the financial development - growth should assist policymakers in the design of efficient economic policies or avoiding/alleviating financial cycles. Using frequency domain Granger causality test, which shows to have more power of standard time domain Granger causality test, we investigate the finance-growth link in 19 Central, East, and Southeast European countries (CESEE) from 1991-2017. Study results show financial development is important for growth in the (CESEE) supporting the “supply-leading” theories in general for countries in the sample.