Does banking sector development affect economic growth and inflation? A panel cointegration and causality approach

Many studies investigate relationships between economic growth in specific economies and the development of its banking sector or between its growth rate and its rate of inflation. Advancing on earlier work, this article uses panel cointegration and causality tests applied to 34 OECD countries over the period 1960–2011. Our novel panel-data estimation procedure offers more robust estimates by utilizing variations between countries as well as variation over time. We identify important long-run causal links among the variables and show their implications for economic policy.