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Financial Development and Economic Activity in Advanced and Developing Open Economies: Evidence from Panel Cointegration.
Chortareas, G. Magkonis, Georgios Moschos, D. Panagiotidis, T.
Chortareas, G.
Magkonis, Georgios
Moschos, D.
Panagiotidis, T.
Publication Date
2015-02
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© 2015 Wiley
This is the peer reviewed version of the following article: Chortareas G, Magkonis G, Moschos D
and Panagiotidis T (2015) Financial Development and Economic Activity in Advanced and
Developing Open Economies: Evidence from Panel Cointegration. Review of Development
Economics. 19(1): 163-177, which has been published in final form at
http://dx.doi.org/10.1111/rode.12132. This article may be used for non-commercial purposes in
accordance with Wiley Terms and Conditions for Self-Archiving.
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Abstract
This study considers the effects of financial development on output in a panel cointegration framework, focusing on the implications of trade and financial openness. Our analysis indicates that after controlling for cross-sectional dependence, the typical relationship between finance and output does not hold in the long run. This relationship, however, is re-established once we account for economic openness. While trade openness emerges as more important for developing countries, financial openness is more important for advanced economies. In the long run, causality runs from financial development to output in the advanced economies, while in developing economies causality is bidirectional. There is no short-run causality between financial development and output, however.
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Chortareas G, Magkonis G, Moschos D and Panagiotidis T (2015) Financial Development and Economic Activity in Advanced and Developing Open Economies: Evidence from Panel Cointegration. Review of Development Economics. 19(1): 163-177.
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