Abstract
This paper examines the causal relationship between financial development and economic growth for 27 medium-income countries in the period 1970 to 2012. We develop a new proxy for financial development that refers to the input of real resources into the financial system and apply the panel bootstrapped approach to Granger causality. The results show, for three countries the findings support strong evidence on supply-leading hypothesis which implies that financial development induces economic growth and for six countries the findings support strong evidence on demand-following. Our results confirm for twenty one countries suggesting that their financial development does not depend on economic growth.
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