Innovation, financial development and economic growth in Eurozone countries

ABSTRACT

Using a panel vector auto-regressive model, we study interactions between innovation, financial development and economic growth in 18 Eurozone countries between 1961 and 2013. We focus on whether causality runs between these variables both ways, one way, the other way or not at all. Our empirical results show that development of the financial sector and enhanced innovative capacity in the Eurozone contributes to long-term economic growth in the countries in the region.

KEYWORDS:

• Innovation
• financial development
• economic growth
• Granger causality
• Eurozone countries

JEL CLASSIFICATION:

• O43
• O16
• E44
• E31

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.

² All monetary variables are measured in real US dollars.

³ The unit root and cointegration test results are not reported here due to space constraints, but are available from the authors upon request.