The Relationship Between Financial Development, Inflation and Economic Growth: The Case of MINT Countries

Along with the integration of money and capital markets, macroeconomic variables such as growth and inflation, which are among the indicators of macroeconomic stability, are also among the determinants of financial development in developed and developing countries. The relationship between financial development and growth is mostly explained by the process of transferring savings to investments in the literature. In endogenous growth theories, financial development is taken as an indicator of growth.

In this study, the relationship between financial development, inflation and economic growth was examined with the Kónya (2006) panel causality test for MINT countries in the 2010-2020 period. According to the causality analysis, it was concluded that there is a bidirectional causality relationship between the credit given to the private sector, which is accepted as an indicator of financial development, and growth. In line with the causality analysis findings, it was concluded that Arthur Lewis (1955)'s 'supply leading hypothesis' which states that financial development causes growth as well as Joan Robinson (1952) and Goldsmith's (1969) 'demand-followed hypothesis' which states the causality relationship from growth to financial development, are valid in MINT countries.