Abstract
The aim of this study is to investigate the impact of financial instability on economic growth. Depart from the hypothesis that financial instability affects economic growth negatively, firstly the definition of instability is made and then focused on the causes of instability to understand a conceptual framework better. In this study, non-stationary dynamic panel data analysis has been used to analyze not only examine the heterogeneity of the variables but also to consider cross-section dependency between cross section units. The second-generation panel unit root tests are utilized in this model, the long-term regression coefficients have been estimated and panel causality analysis is used to determine the direction of the causality relationship between the economic growth and financial instability. The empirical findings of the study support the hypothesis which suggest that financial instability has adverse effects on economic growth.
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