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Relationship Between Financial Development And Economic Growth Using Time Series Modeling

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This thesis explores the long run relationship between financial development and economic growth using time series modeling. For each of the four case-countries three types of Vector Autoregression (VAR) models will be developed except for the case of Serbia where only VAR related to credit institutions development will be developed since data related to stock market development indicators were unavailable to author. For the case of Croatia, Slovenia and China three separate VAR models will be applied. First, bivariate VAR model to explore the connection between credit institutions development and economic growth. Second, bivariate VAR model to explore the connection between stock markets development and economic growth. Third,…show more content…
Last, China data set is in quarterly observations from 2000 – 2013 totaling 56 observations. Data sets for credit institutions were collected from Croatian National Bank, Croatian bureau of statistics, Serbian National Bank, Slovenian National Bank and Slovenian bureau of statistics while data for stock market indicators were collected from Croatian and Slovenian national stock exchange web sites and related yearly publications. Data set for China was completely provided by research department of IECASS (ABBREVIATON) thanks to the help of Prof. Liu.

3.2. INDEPENDENT VARIABLES
Credit institutions development variables
A wide range of theoretical literature explores the relationships between banks and economic growth. In an ideal world researchers would construct cross-country variables that would describe banks profitability, corporate governance in place, resource mobilization and allocation and risk management. Unfortunately until now no standardized measures for a broad spectrum of countries have been developed. That is the main reason why most of the researchers today uses variables that describe the over-all size of the banking sector by which they proxy for the „financial depth“ (Goldsmith, 1969; Mckinnon 1973). M2 (m2) or also known as the broad money is one of the common variables used in exploring the finance-growth nexus. As defined by investopedia , M2 is the measure of money supply that includes cash and checking deposits, money
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