Financial Development, International Trade and Economic Growth in Australia:New Evidence from Multivariate Framework Analysis

This study investigates the relationship between financial development, international trade and economic growth in case of Australia over the period of 1965-2010. The ARDL bounds testing approach to cointegration was applied to examine the long run relationship among the series, while stationarity properties of the variables were tested by applying two structural break tests i.e. Zivot-Andrews (1992) and Clemente et al. (1998). Our empirical evidence confirmed the long run relationship among the variables. The results showed that financial development, international trade and capital are the drivers of economic growth both in short run as well as in long run. The feedback effect exists between international trade and economic growth. Financial development Granger causes economic growth validating supply-side hypothesis in case of Australia.