Statistical Analysis of the Relationship Between Economic Growth and Financial Development on Global Scale

This paper aimed to investigate the direction and nature of the relationship between financial development and economic growth in 137 countries of the world over the 1992-2017 period. The research focused on the indicators of financial development and economic growth. The object of the investigation was the relationship between financial development and economic growth indicators in the world countries. Modeling of the relationship between financial development and economic growth was performed using OLS as well as using SAR and SEM models based on spatial data. Based on the results of the OLS it can be noted that the nature of the impact of financial development on economic growth was non-linear and had the inverted U-shaped form. The study of cross-country relationships had shown that spatial effects were present only in the group of developed countries and the direction of such interaction was positive. The construction of the spatial error model (SEM) revealed that closely located countries had similar high indicators of financial development which, in turn, had a positive impact on the economic growth rate. An ARDL model based on dynamic panel data was used to evaluate short-term and long-term effects. In addition, tests were conducted on the co-integration between the proxies of financial development and economic growth. The results revealed that in the long term the development of financial institutions was more important for economic development while in the short term financial markets played a greater role. The results obtained in this work can become a focus for further study of this area in specific countries and regions for the implementation of effective financial and economic policies.