The Relationship between Financial Development and Economic Growth: Empirical Evidence from 27 European Union Countries

The present study focuses on the relationship between financial development and economic expansion in the European Union (EU) countries. We compare three different periods: the years before the financial crisis, the years affected by the crisis, and the post-crisis period. Using the System Generalized Method of Moments estimator alongside Granger causality tests, the results reveal a bidirectional causality between finance and growth before the financial crisis. During and after the crisis, financial development Granger causes economic growth only unidirectionally. The strongest positive impact of financial development on growth is observed after the crisis.