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FINANCIAL MARKETS AND ECONOMIC GROWTH IN GREECE, 1986-1999

George Hondroyiannis

Bank of Greece, Economic Research Department, Athens, Greece

Sarantis Lolos

Department of Economics and Regional Development,

Panteion University, Athens, Greece

Evangelia Papapetrou

University of Athens, Department of Economics

and Bank of Greece, Economic Research Department, Athens, Greece

ABSTRACT

This paper assesses empirically the relationship between the development of the banking system and the stock market and economic performance for the case of Greece over the period 1986-1999. Greece is a medium sized EU country where the financial liberalization process started back in the early eighties. The empirical results, using VAR models, suggest that there exists a bi-directional causality between finance and growth in the long run. The findings, using error-correction models, show that both bank and stock market financing can promote economic growth, in the long run, although their effect is small. Furthermore, the contribution of stock market finance to economic growth appears to be substantially smaller compared to bank finance.

Keywords: Financial Development; Economic Growth; VAR

JEL classification: E44; C32

The authors wish to thank the participants at the 51st International Atlantic Economic Conference, Athens, Greece for discussions and helpful comments on a previous version of this paper. We also wish to acknowledge useful discussions with Stephen Hall. The views expressed in this paper are those of the authors and not necessarily those of the Bank of Greece.

Correspondence:

George Hondroyiannis,
Economic Research Department,
Bank of Greece, 21 E. Venizelou St.,
102 50 Athens, Greece
Tel. +30 210 320.2429, Fax +30 210 323.3025
Email: ghondroyiannis@bankofgreece.gr


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