Financial development and economic growth : a revised empirical study for Ireland

Abstract

This study is a revised empirical research examining the relationship between financial development and economic growth for Ireland for the period 1965-2011. The objective of this study is to examine the long-run relationship between financial development and economic growth taking into account the positive effect of industrial production index. For this purpose usual classical econometric methods are adopted. A vector error correction model is estimated based on Johansen cointegration analysis and stationarity tests. Finally, Granger causality method is applied in order to define the direction of causality between the examined variables. The empirical results indicated that there is a bilateral causal relationship between economic growth and industrial production, while there is a unidirectional causality between economic growth and credit market development. Also, stock market development causes economic growth and industrial production. Therefore, it can be inferred that stock market development has a direct causal effect on economic growth taking into account the positive effect of industrial production growth on economic growth for Ireland.