Financial development, trade openness and economic growth: panel analysis of selected CEE countries

Abstract

The aim of the paper is to examine the impact of trade openness and financial development measured by domestic credit to the private sector by banks on economic growth in selected Central and Eastern European countries (CEEC). The analysis covered 19 years from 2000 to 2018. The following countries were analyzed: Bulgaria, Croatia, Czech Republic, Hungary, Poland, and Romania. Cointegration between variables is confirmed by the Westerlund cointegration test. Based on the Mean Group (MG) estimator, outcomes exhibit that the trade openness in the long run has a positive effect on economic growth, while domestic credit to the private sector by banks negatively affects growth in the observed period. The negative impact of financial development on economic growth is possible if the expansion of credit to the private sector is not accompanied by adequate increase in real output.