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We are Section-B, Group#18

Sudhnya Amrita Islam Shuvra Das Md. Morshedul Haq Tanvir Hasan Md. Zahidul Bashar ID#084 ID#124 ID#142 ID#068 ID#140

    

Financial development and Economic Growth

An empirical Analysis for Greece

Background of the research:



 

Investigates relationship between FD and EG for Greece. The research covers 1978-2007 year period Uses a VECM model The question raised is whether financial development causes Economic growth or reverse.

The Objective
To examine the casual relationship between the variables

Theoretical relationship analyzes:

3 different perspectives:
1. 2. 3.

Structuralists view Repressionists view Endogenous growth theory supporters view

Approaches used in the research: (4 approaches)

   

Unit root test Johansen co-integration analysis Vector error correction model Granger causality test

Model is determined as:

GDP= f (SM, BC, IND) Here, GDP= Gross Domestic Product SM= general stock market index BC= domestic bank credits to private sector IND= industrial production index ***Holding year 2007 as base year

The 1st Approach: Unit root test

to test whether it is a Stationary data set  If calculated value > critical value = non stationary data set and vice versa  ThereforeH0: non stationary data set Ha: stationary data set

Unit root test of the estimated model

variables In levels ADF value GDPGRE BCGRE SMGRE INDGRE 13.45 -1.65 -3.64 1.33 In first differences Critical value -3.72 -2.65 -2.65 -2.65

Critical value ADF value -2.64 -3.67 -4.32 -2.64 -3.98 -4.38 -3.02 -5.84

2nd Approach: Johansen co-integration analysis

Using trace test, it examines Whether variables are integrated at order 1  Identification of co integration vector
Calculated value > critical value  46.18 >39.89


Variables are integrated and has impact on economic growth

3rd Approach: Vector error correction model

Examines the Likelihood Ratio between FD & EG Error Correction Term indicates the dynamic behavior of the model

Independent variable Constant GDP SM BC IND ECT

Estimated coefficients -0.01 0.12 0.06 0.14 0.32 -0.03

4th approach: Granger causality test (Through a bivariate model)

Country Greece

Dependent Independent variable variable GDP SM BC IND BC IND IND

F1 0,04 0,40 1,46 0,84 6,29 4,15

F2 19,19 2,91 3,92 1,81 6,80 0,82

Causal relationship GDP SM NO causality GDP IND NO causality SM IND IND BC

SM BC

CONCLUSION
Economic growth causes Financial development in Greece (Robinson)

Thanks to all