Investigating the relationship between country competitiveness and financial market development in crisis times

A country’s competitiveness depends on many factors related to general governance, effectiveness of markets, social development and business perspectives. The role of financial markets for economic growth has been the subject of many scientific studies; most of them concluded that a well-developed financial system should improve the efficiency of financing decisions, favoring a better allocation of resources, and thereby economic growth. The financial crisis that started in the summer of 2007 is still testing the strength of the world economic system. It started in the financial sector but is now having an important impact on the real economy. The aim of this paper is to investigate the relationship between a country’s competitiveness and financial market performance in times of crisis. It presents empirical data and preliminary econometric testing for this relationship. The methodological approach employs linear regression, tested for heteroskedasticity and robustness, over a dataset relevant to the European countries. The data come from the World Bank, the Organisation for Economic Co-operation and Development (OECD) and the National Statistical Services of the countries under investigation, for the years from 2007 and onwards. The intention is to identify whether and how the competitiveness of a country affects the performance and development of financial markets, in terms of returns, volume and overall interest. As a mirror symmetric approach, examine, whether a well-performing financial market (in the previous terms) can assist in the competitiveness of a country, especially in times of crisis. The analysis intends to focus more in the cases of countries (such as for example Greece) which are still under stress and whose competitiveness is a question mark even after the implementation of adjustment programs. The goal of the paper is to conclude with proposals for the policy to be followed, supported by the aforementioned quantitative evidence, which is one step ahead of the existing literature in the area that simply admits the problematic, without necessarily coming up with ways to overcome it.