The Relationship Between Financial and Economic Indicators in Developed and Developing Countries: An Example of Heterogeneous Panel Causality Analysis

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There are many factors that indicate the level of development of a country. The main factors are economic and financial factors such as economic growth, inflation, CDS (Credit Default Swap) premiums, exchange rate and portfolio investments in the country. These factors are influential in the investment decisions of foreign investors as well as the determinant of economic policies. Therefore, it is important to examine the cause-effect relationships between economic and financial indicators and to determine whether these relationships differ in terms of developed and developing countries. The purpose of this study is to investigate the causality relationship between financial and economic indicators such as CDS (Credit Default Swap) premiums portfolio investments, inflation, exchange rate and economic growth rate in the context of developed and developing countries. In this context, heterogeneous panel causality anaylsis was carried out with data from a total of eighteen developed and developing countries between the periods 2009:1-2019:3. The findings obtained reveal similar and different aspects of the causality relationships between financial and economic indicators in developed and developing countries. Exchange rate, inflation and CDS premiums were determined as the reason for portfolio investments for both country groups. In addition, it was observed that the main difference between developed and developing countries was in the growth rate variable. While the growth rate variable is the cause of the portfolio and exchange rate variable in developing countries, this relationship was not found in developed countries. Furthermore a one-way causality relationship was found between inflation and growth rate in developing countries. The results of the study are expected to be beneficial to policy makers and international investors.


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Turkish Studies - Economics, Finance, Politics

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