Financial development and macroeconomic performance: a cointegration approach

We test the existence of long-term relations, measured through cointegration, between all the IMF financial development indices and some macroeconomic performance indicators, applying panel cointegration tests in a panel with 46 countries over the interval 1990-2017. The results obtained clearly point to the existence of cointegration between the financial development indices not only with the real Gross Domestic Product, but also with the inflation, the unemployment rate, with the current account, and with the net international investment position. Moreover, the results related to the specific aspects addressed by the IMF indices very well demonstrate that much more important than the simple access to or the depth of the financial institutions and markets is the efficiency of these institutions and markets.