Clustering-Conditioned Granger Causality Between GDP Growth and Private Financing

Area of Science:

• Economics
• Econometrics
• Macroeconomics

Background:

• The causality between financial development and economic growth is a long-standing debate.
• Existing literature presents conflicting findings on the direction of this relationship.
• Macro-structural heterogeneity across countries is often overlooked in causal analyses.

Purpose of the Study:

• To investigate the context-dependent nature of the GDP-credit nexus.
• To systematically uncover the direction and strength of causality between finance and growth.
• To reconcile conflicting findings by accounting for macro-structural differences.

Main Methods:

• A two-stage pipeline combining unsupervised clustering and dynamic causal analysis.
• Agglomerative Clustering of 30 economies based on annual macro indicators (2005-2022).
• Within-cluster Granger causality tests and explanatory models using quarterly GDP and private credit data (2005-2024).

Main Results:

• Non-universal causality observed across different economic contexts.
• Credit leading GDP is predominant in "developed and in transition, economically stable" economies.
• Bidirectional causality is prevalent in "emerging/intermediate with macro risk" economies, with interpretable feedback loops.

Conclusions:

• The direction of causality between finance and economic growth is not universal but context-dependent.
• A macro-segmented causal discovery framework can reconcile conflicting literature findings.
• Policy recommendations should differentiate based on a country's specific economic structure and risk profile.