Abstract
The present paper examines the economic growth and financial
development relationship in two of the European Union’s founding countries
and Eurozone members, namely Germany and Luxembourg, by taking into
consideration a large period, from 1970 to 2019. We motivate the choice of these
specific two countries based on the similar rate of GDP per capita growth over
the years, and also on the relevance of the financial sector in the total economy.
Five different measures of financial development are employed to address the
depth and efficiency of the financial sector. We apply Granger causality tests,
using the cointegration and Vector Error-Correction (VEC) methodology. The
empirical analysis indicates consistent results, as both in the case of Germany and
Luxembourg it can be established Granger causality for the economic growth –
financial development nexus. There is also evidence of bi-directional relationship.
Publisher
Babes-Bolyai University Cluj-Napoca
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