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The Relationship between Financial Development and Economic Growth in EU Member Countries: Sub-Group Estimation Based on the Countries’ Level of Development

Author

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  • Pușcașu, Ela-Andrada

    (Bucharest University of Economic Studies, Bucuresti, Romania)

Abstract

The financial systems undergo changes as countries grow, self-financed capital investments being less frequent and being replaced by financing through banking intermediation and later through capital markets. The financial development has an increasing role in the context of globalisation and emergence of market economies, supporting the exchange of funds between participants. Previous research papers present different results regarding the impact of financial development on economic growth; however, their preponderance shows a positive relationship, the financial system stimulating economic growth. This paper investigates the impact of financial development on economic growth using panel regressions for the member countries of the European Union, for the period 1990-2021. The results show that financial development, both through the activity of the banking sector and through the capital market, has a positive impact on economic growth, as long as there is a correspondence between the funds invested and the output of the real sector.

Suggested Citation

  • Pușcașu, Ela-Andrada, 2024. "The Relationship between Financial Development and Economic Growth in EU Member Countries: Sub-Group Estimation Based on the Countries’ Level of Development," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 39(2), pages 319-343.
    • Handle: RePEc:ris:integr:0903
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    Keywords

    financial systems; economic growth; European Union; banking sector; capital market;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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