Balkan financial development and its impact on economic growth: Granger causality

This paper examines the relationship between financial development and economic growth for six countries of Western Balkan (Albania, Montenegro, North Macedonia, Kosovo, Bosnia Herzegovina, Serbia) period 2005–2019. To determine direction causality development, we employed vector autoregression VAR approach. Findings indicate evidence supply leading theory (Hurlin & Venet, 2008; McKinnon, 1973; Patrick, 1966; Shaw, 1973): causes overall, especially when private credit was used as proxy it. Yet, observed bi-directional links proxied by broad money. Furthermore, interest spread affected growth. The findings also a positive money taken together to GDP growth, but only in first lag; second lag, inverse effect on became evident. On comparative scale, found have bigger impact than We observe that banking system intermediaries significant role spurring region.