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CORRELATIONS BETWEEN CAPITAL MARKET DEVELOPMENT
AND ECONOMIC GROWTH: THE CASE OF ROMANIA1

Laura OBREJA BRASOVEANU
PhD, Associate Professor, Finance Departament,
University of Economics, Bucharest, Romania

E-mail: laura_obreja@yahoo.com

Victor DRAGOTA2
PhD, University Professor, Finance Departament,
University of Economics, Bucharest, Romania

E-mail: victordragota@yahoo.com, victor.dragota@fin.ase.ro

Delia CATARAMA
PhD Candidate, Assistant Professor, Finance Departament,
University of Economics, Bucharest, Romania

E-mail: delia.catarama@fin.ase.ro

Andreea SEMENESCU3
PhD Candidate, University Assistant, Finance Departament,
University of Economics, Bucharest, Romania

E-mail: asemenescu@yahoo.com

Abstract: In the literature on endogenous growth, the link between capital markets development and economic growth has received much attention. Although there are many studies regarding this aspect, approaches on emergent ex-communist countries’ economies, especially for Romania, are very few comparatively to the general cases.
Our paper examines the correlation between capital market development and economic growth in Romania using a regression function and VAR models. The results show that the capital market development is positively correlated with economic growth, with feed-back effect, but the strongest link is from economic growth to capital market, suggesting that financial development follows economic growth, economic growth determining financial institutions to change and develop.
Key words: time-series; political economy; economic growth; capital market development

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Quantitative Methods Inquires

1. Introduction
In the recent financial literature on endogenous growth, the relationship between capital markets development and economic growth has received much attention (see King and Levine, 1993; Levine, 1997; Rajan and

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