Skip to main content Accessibility help

The Relationship between Financial Development and Unemployment in Selected Countries of the European Union

  • Serhan Çiftçioğlu (a1) and Murad A. Bein (a2)


This article empirically examines the relationship between alternative measures of financial development and the unemployment rate in a selected group of ten EU countries. Using annual data for the sample period of 1991–2012, we first perform different panel regressions (using averaged and non-averaged versions of data) for unemployment rate. These panel regressions are based on a regression equation that includes inflation rate and growth rate of GDP, in addition to the level of financial development, as explanatory variables. Secondly, we apply Granger causality tests to investigate the nature of the causality between financial development and the unemployment rate for each country in our sample. The empirical findings suggest that unemployment rate and financial development are negatively correlated, and there is a statistically significant causal effect of financial development on unemployment in certain countries. However, the results are not robust to the choice of proxy measure for financial development.



Hide All
1. Calderón, C. and Liu, L. (2003) The direction of causality between financial development and economic growth. Journal of Development Economics, 72, pp. 321334.
2. Jbili, A., Enders, K. and Treichel, V. (1997) Financial reforms in Algeria, Morocco, and Tunisia: A preliminary assessment. IMF Working Paper.
3. Patrick, H. (1966) Financial development and economic growth in underdeveloped countries. Economic Development and Cultural Change, 14, pp. 174189.
4. Ang, J.B. and McKibbin, W.J. (2007) Financial liberalization, financial sector development and growth: evidence from Malaysia. Journal of Development Economics, 84, pp. 215233.
5. Hassan, M.K., Sanchez, B. and Yu, J.S. (2011) Financial development and economic growth: new evidence from panel data. The Quarterly Review of Economics and Finance, 51, pp. 88104.
6. Lartey, E.K.K. and Farka, M. (2011) Financial development, crisis and growth. Applied Economics Letters, 18(8), pp. 711714.
7. Jappelli, T. and Pagano, M. (1994) Savings, growth and liquidity constraints. Quarterly Journal of Economics, 109(1), pp. 93109.
8. Güngör, H., Çiftçioğlu, S. and Balcılar, M. (2014) Does financial development increase private savings? The case of Turkey. International Journal of Business and Social Science, 5(2), pp. 3647.
9. Becker, B. and Sivadasan, J. (2006) The effect of financial development on the investment-cash flow relationship: cross-country evidence from Europe. The B.E. Journal of Economic Analysis & Policy, De Gruyter, 10(1), pp. 149.
10. Sancak, C. (2002) Financial liberalization and real investment: evidence from Turkish firms, IMF Working Paper 02/100, June (Washington, DC: International Monetary Fund).
11. Wurgler, J. (2000) Financial markets and the allocation of capital. Journal of Financial Economics, 58, pp. 187214.
12. DeGregorio, J. and Gnidotti, P.E. (1995) Financial development and economic growth. World Development, 2.3(31), pp. 433448.
13. Bond, S. and Malik, A. (2007) Explaining cross-country variation in investment: the role of endowments, institutions and finance. Working Paper, Department of Economics, Oxford University.
14. Williamson, S.D. (2011) Macroeconomics (New York: Pearson), pp. 338393.
15. Ilyina, A. and Samaniego, R. (2011) Technology and financial development. Journal of Money, Credit and Banking, 43(5), pp. 899921.
16. Blanchard, O. (2009) Macroeconomics (New York: Pearson), pp. 145156.
17. Tobin, J. (1965) Money and economic growth. Econometrica, 33, pp. 671684.
18. Granger, C.W.J. (1969) Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), pp. 424438.
19. Dickey, D. and Fuller, W.A. (1981) Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49, pp. 10571072.
20. Phillips, P. and Perron, P. (1988) Testing for a unit root in time series regression. Biometrica, 75, pp. 335346.


Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed