Financial Development and Economic Growth in a Transition Economy: Evidence for Poland

Abstract

This paper examines the long-run relationship between finance and economic growth for a transition economy, such as Poland using quarterly data from 1994:Q1 until 2004:Q4. It presents the interaction between the financial market and economic growth, and an aggregate production function is then estimated using cointegration analysis. Given that the literature on the transition specific finance-growth relationship has recently started to emerge, this study with a focus on a transition economy contribute to the existing limited research. The findings suggest that, in the long run, credits to the private sector have been one of the main forces in Polish economic growth. Furthermore, we find that economic development is not driven by endogenously determined variables among which is financial development.

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