The Empirics of Finance and Growth Revisited: Using Time Series Method

This paper aims to reexamine the causal relationship between financial development and economic growth in 93 countries classified in three different groups of high, medium and low income countries from the year 1960 to 2002 depending on available data. Using the Johansen cointegration and Granger causality test, we have found that the empirical results of the cointegration and direction of causality between financial development and growth are sensitive to the measure of financial development as well as the desired lag length used in the model. And we report that no homogeneous pattern of causality has been found in the respective group of the individual countries. Our finding demonstrates that there is a serious heterogeneity in the finance-growth nexus across countries and the causal relationship from finance to growth has no general empirical ground.