The links between financial depth and economic variables: evidence from Poland
ISSN: 1526-5943
Article publication date: 26 May 2023
Issue publication date: 27 July 2023
Abstract
Purpose
The purpose of this paper is to examine the relationship that exists between financial depth and economic growth in Poland for the years 1995–2019. This paper utilizes integration and co-integration techniques to capture the long-term and short-term linkages between various determinants of financial deepening, economic growth and a few selected growth variables. Financial depth is measured using two distinct measures: the monetization ratio (i.e. the ratio of broad money in the economy to the gross domestic product (GDP)) and the domestic credit provided to private sector by banks.
Design/methodology/approach
The paper uses a combination of Augmented Dickey–Fuller (ADF) and Phillips–Perron unit root tests, autoregressive distributive lag (ARDL) model and Granger causality tests to estimate results.
Findings
This paper finds that there is a bidirectional causal relationship between financial deepening and economic growth in the short run, but this relationship does not hold in the long run. The control variables comprising trade volume, investment, government spending and volatility in oil prices and inflation have a significant, positive relationship with economic development in the long run.
Originality/value
The findings are indicative of the need for further strengthening of the financial sector in Poland, such that the relationship between financial depth and economic growth is substantiated in the long run. This paper also finds room for more stringent regulation of the financial system and transparency in information available.
Keywords
Acknowledgements
The authors acknowledge the contribution made by Ms Sania Hammad in collection and cleaning of data.
Citation
Afzal, A., Firdousi, S.F. and Mahmood, K. (2023), "The links between financial depth and economic variables: evidence from Poland", Journal of Risk Finance, Vol. 24 No. 4, pp. 449-463. https://doi.org/10.1108/JRF-09-2022-0245
Publisher
:Emerald Publishing Limited
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