Correlations Between Capital Market Development and Economic Growth: the Case of Romania

Laura OBREJA BRASOVEANU
Victor DRAGOTA
Delia CATARAMA
Andreea SEMENESCU

Keywords

time-series, political economy, economic growth, capital market development

Abstract

In the literature on endogenous growth, the link between capital markets development and economic growth has received much attention. Although there are many studies regarding this aspect, approaches on emergent ex-communist countries’ economies, especially for Romania, are very few comparatively to the general cases. Our paper examines the correlation between capital market development and economic growth in Romania using a regression function and VAR models. The results show that the capital market development is positively correlated with economic growth, with feed-back effect, but the strongest link is from economic growth to capital market, suggesting that financial development follows economic growth, economic growth determining financial institutions to change and develop.