ECONOMIC GROWTH AND FINANCIAL DEVELOPMENT IN DEVELOPING COUNTRIES: AN EMPIRICAL INVESTIGATION USING PANEL CAUSALITY ANALYSIS OF CANNING AND PEDRONI

This study aims to investigate the causal relationship between financial development (FD) and economic growth (EG) from 1990 to 2022. 45 developing countries and the approach recommended by Canning and Pedroni (2008) has been applied to determine this link. Based on the result of Unit Roots tests, the variables are first-order integrated. The cointegration connection indicates that, despite ongoing external shocks, the time series are linked in a long-term equilibrium. For the whole panel, the causality results show a long-run, unidirectional causal relationship. The long-run causal link from EG to FD is not supported by panel causality data. Examining group averages, there is no long-term causal relationship from FD to EG or EG to FD. The results demonstrate the validity of the supply-leading viewpoint and demonstrate that financial market reforms, financial market liberalization policies, and improved financial intermediation services all have a favorable impact on EG in the economies under discussion.