The Linkage between Financial Liberalization and Economic Development: Empirical Evidence from Poland

This paper uses time series empirical data on six key indicators of financial liberalization in Poland to explore the linkage between financial liberalization and economic growth. We begin with a survey of the financial liberalization process and then use monthly empirical data covering the period 1990-2002 to examine the linkages between financial liberalization and economic development. The results of our study indicate that not only is there evidence of a long run positive linkage between financial liberalization and economic growth but also that there is strong evidence to indicate that the direction of causation runs from the former to the latter and not vice-versa. Evidence from all six of the financial indicators (Turnover, Capitalization, narrow money M0, broad money M2, Depth and Share Prices) indicates that they raise industrial production while the latter causes financial development in only two of the cases.