Financial development and economic growth in Greece, The Southeuropean Review of Business Finance & Accounting 4(2): 35-46, 2006. In common with M. Trigoni

Financial development and economic growth in Greece, The Southeuropean Review of Business Finance & Accounting 4(2): 35-46. In common with M. Trigoni (2006).

During the last decades, there has been a controversy of opinions, regarding the relationship between financial development and economic growth. In this study, we attempt to detect the relationship between finance and growth in Greece, using a number of different financial indicators, for the period 1960 -2005. Specifically, we test the interaction of saving ratio as well as real gross fixed capital formation with variables indicative of financial depth, financial competition and efficiency. We use autoregressive-distributed lag formulations and test cointegration. The speed of adjustment to equilibrium is proved to be fast, through the Error correction model formulations. Our empirical results show that the ratio of short to long term loans and spread, which is a proxy of the level of competition in the financial system, negatively affect saving rate and real gross fixed capital formation respectively. Although the relationship between most of the financial proxies with growth proves to be insignificant, in Greece, there seems to be an application of the «supply leading hypothesis», according to which finance can lead growth, through the restructuring of credit in favor of long term funding and financial liberalization by means of decreasing spread.

JEL Classification Codes: E5, G0