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The role of the financial sector in the UK economy: evidence from a seasonal cointegration analysis

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  • Sami Fethi
  • Salih Katircioglu

Abstract

This article empirically investigates the relationship between stock market/banking sector development and economic growth by controlling for the effects of human and physical capital factors in a seasonal cointegration framework. We use a sample of quarterly and seasonally unadjusted data which covers the period 1965Q1–2011Q4. The results suggest that: (1) the UK financial sector development is a good promoter of the domestic economy both in the long- and the short-run; (2) the supply-leading hypothesis that causality runs from stock market capitalisation and stock market volatility to real GDP per worker is confirmed; (3) stock market volatility has a negative influence on the UK’s output, which may reflect economic ambiguity but may also reflect a well-functioning and efficient stock market; (4) if a country has a good infrastructure and a well-educated nation, it enhances economic growth as well as betters the financial sector (i.e. markets and banks); and (5) if a new global financial meltdown is formed, this can easily devastate the UK economy.

Suggested Citation

  • Sami Fethi & Salih Katircioglu, 2015. "The role of the financial sector in the UK economy: evidence from a seasonal cointegration analysis," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 28(1), pages 717-737, January.
    • Handle: RePEc:taf:reroxx:v:28:y:2015:i:1:p:717-737
    DOI: 10.1080/1331677X.2015.1084476
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    Cited by:

    1. Setareh Katircioglu & Salih Katircioglu, 2023. "The effects of business and finance conditions on the tourism stock markets: An empirical investigation from Turkey," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4500-4511, October.
    2. Ndubuisi N. Udemezue & Catherine A. Nneli & Stephen F. Aleke & Frankine C. Okeke, 2024. "Evaluating Sustainable Relationship between Stock Market Development and Nigeria’s Economic Growth," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(1), pages 2449-2470, January.

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