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On the nexus of innovation, trade openness, financial development and economic growth in European countries: New perspective from a GMM panel VAR approach

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  • Kais Mtar
  • Walid Belazreg

Abstract

This paper examines the four‐way linkages between innovation, trade openness, financial development and economic growth using panel‐VAR approach for 11 European countries over the period 2001‐2016. Most importantly, the findings revealed that there is a unidirectional relationship between economic growth and financial development, between trade and economic growth and between innovation and financial development. The findings also revealed a negative relationship between innovation and economic growth and between trade and economic growth. The paper concludes that further regulation of financial systems and the quality of funding are important ingredients to foster economic development. The paper also concludes that country‐specific characteristics can play an important role in fostering innovation and productivity. Furthermore, policymakers should improve institutional quality and improve the regulatory environment in order to benefit more from trade openness. Also, policy makers need to use innovation incentives for local companies in order to counteract the negative effects induced by market opening.

Suggested Citation

  • Kais Mtar & Walid Belazreg, 2023. "On the nexus of innovation, trade openness, financial development and economic growth in European countries: New perspective from a GMM panel VAR approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 766-791, January.
    • Handle: RePEc:wly:ijfiec:v:28:y:2023:i:1:p:766-791
    DOI: 10.1002/ijfe.2449
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    10. Jiahao Shen & Runze Liu & Yanling Lin & Ridwan Lanre Ibrahim, 2023. "Technological advancement and regulatory quality," African Development Review, African Development Bank, vol. 35(4), pages 336-350, December.
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    14. IWASAKI, Ichiro & ONO, Shigeki, 2023. "Economic Development and the Finance-Growth Nexus : A Meta-Analytic Approach," CEI Working Paper Series 2023-06, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
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