Financial Market and Economic Growth: Panel Cointegration Evidence for Developing Economies

This paper examines the relationship between financial market and economic growth by applying the analysis of panels with recently developed Panel Co integration (Pedroni 1999, 2004) technique for a group of fourteen developing countries for the 1990-2006 periods. After finding the long-run integration between variables, the study employs Dynamic OLS (DOLS) estimation technique to measure the roles of stock market liquidity and size; and the intensity of activity in traditional financial intermediaries on economic growth. Our results fail to observe any significant impact of stock market development on economic growth of developing countries. However, we find some evidence that suggest for a relationship between financial depth and income of the economies.