Financial developmment and economic growth: The Albanian case

This paper examines the causal relationship between financial development and economic growth for the Albanian economy using the Granger causality test for five different proxies for financial development. For the non-stationary and non-cointegrated series, the VAR model has been constructed and later, the above test has been applied. For non-stationary series but with a cointegrating relationship, the Granger-causality test has been applied after the construction of the vector error correction model (VECM). The empirical findings of the study show that there is a positive relation between all indicators measuring the financial development and economic growth in the long term. While in the short term, this relation is quite vague since different indicators provide different results. The data used in this paper belong to the period 1996-2007.