Credit Market Development and Economic Growth: An Empirical Analysis for Ireland

Abstract

This study investigated the causal relationship between credit market development and economic growth for Ireland for the period 1978-2007 using a vector error correction model (VECM). The purpose of this study was to investigate the short-run and the long-run relationship between the examined variables applying the Johansen cointegration analysis. For this purpose unit root tests were carried out according to Phillips-Perron (1988) and Kwiatkowski et al (1992), but also taking into account Levin et al (2002) panel unit root test. Finally, a vector error correction model was selected to investigate the long-run relationship between credit market development and economic growth taking into account the inflation rate. The results of Granger causality tests indicated that there is unidirectional causality between credit market development and economic growth for Ireland.