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The causality between financialization and economic growth in Central and Southeast European countries

ABSTRACT This paper is focused to the empirical evidence of the impacts of financialization on economic growth (mutual causality) in the region of Central and Southeast Europe (CESEE). We have applied the Granger causality between financial indicators and economic growth. The analysis was performed on the sample of 15 countries covering the period 2000-2012. The results show that the causality goes from stock market capitalization and banking efficiency to economic growth, while domestic credit to the private sector does not have a significant impact. In the opposite direction, economic growth is a significant cause of stock market capitalization and domestic credit while it does not have an influence on bank efficiency. We also found that current account has a positive and significant impact on the GDP p.c. growth rate while there is no causality in the opposite direction. Also of importance is the result that domestic credit to the private sector has a positive impact on export, which indicates the role of the banking sector through credit activities for export growth. Applying panel data analysis the main determinants of GDP p.c. growth are indicated.

financialization, GDP growth rate, CESEE region, Granger causality

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