Subject: Financial Development, Trade Openness, Economic Growth, VAR
Year: 2021
Type: Proceeding article
Title: THE RELATIONSHIP BETWEEN THE DEVELOPMENT OF THE FINANCIAL SECTOR AND THE ECONOMIC GROWTH IN THE REPUBLIC OF NORTH MACEDONIA
Author: Dashmir Saiti
Author: Borce Trenovski
Abstract: According to economic theory, the money supply positively affects economic growth, especially in the short run. Additionally, for small and open economies, the openness of the economy plays a crucial role in economic growth. Therefore, the subject of this paper is the impact of the money supply, measured through the broad money aggregate (M3), and trade openness of the country on the economic growth in North Macedonia. M3 aggregate is taken as an indicator of the financial sector development, whereas on the other hand, the trade-to-GDP ratio is an indicator for the openness of the economy. The research is employing the Vector Autoregression (VAR) model, and quarterly data for the period 1995-2019 are used. As opposed to the economic theory, the results show the absence of a long-run relationship between GDP, broad money, and trade openness in North Macedonia for the observed period. Also, in the short run, M3 and trade openness have a significant positive impact on GDP. Additionally, there is no noticeable time gap in the above relationships. Namely, the impact of broad money and trade openness on GDP in North Macedonia is not much stronger after a significant time lag from the impact in the first year. This put into question the capability of the monetary policy as a tool of the broader macroeconomic policy to shift the aggregate demand curve upwards and boost economic activity.
Publisher: Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje
Relation: 2nd international conference Economic and Business Trends Shaping the Future
Identifier: oai:repository.ukim.mk:20.500.12188/15857
Identifier: http://hdl.handle.net/20.500.12188/15857Identifier: http://doi.org/10.47063/EBTSF.2021.0006
