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Matthias Hartmann, Helmut Herwartz and Yabibal M. Walle
''Where enterprise leads, finance follows. In-sample and out-of-sample evidence on the causal relation between finance and growth''
( 2012, Vol. 32 No.1 )
Evidence on the causality between finance and growth is largely inconclusive. In this study, a large cross-sectional data set of 74 economies for the period between 1975 and 2005 is examined. We summarise evidence from in-sample and out-of-sample causality tests based on rolling estimation steps. It is found that growth impacts on financial development in a stronger way than vice versa. These findings are consistent if economies are categorised into distinct income groups.
Keywords: Finance-growth nexus, Granger causality, directional accuracy
JEL: O1 - Economic Development: General
C5 - Econometric Modeling: General
Manuscript Received : Feb 21 2012 Manuscript Accepted : Mar 13 2012

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