The links between financial depth and economic variables: evidence from Poland

PurposeThe 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 fi...

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Bibliographic Details
Published inThe journal of risk finance Vol. 24; no. 4; pp. 449 - 463
Main Authors Afzal, Ayesha, Firdousi, Saba Fazal, Mahmood, Kamil
Format Journal Article
LanguageEnglish
Published London Emerald Publishing Limited 27.07.2023
Emerald Group Publishing Limited
Subjects
Business cycles
Causality
Economic development
Economic growth
Economics
Financial institutions
Government spending
Private sector
Research methodology
Securities markets
Transition economies
Volatility
Poland
Eastern Europe
Financial depth
Economic growth
G10
G21
Finance-growth nexus
Financial regulation
G28
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Summary:PurposeThe 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/approachThe 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.FindingsThis 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/valueThe 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.
ISSN:1526-5943
2331-2947
DOI:10.1108/JRF-09-2022-0245