Wieslaw Debski, Ph.D., University of Finance and Management, ul. Gornicza 6A, Lodz, 91848, Poland, Iwona Bujnowicz, Ph., D., International Economic Relations, Universisy of Lodz, 3/5 POW, Lodz, PL -90255, Poland, and Piotr Wdowinski, Ph., D., Department of Econometrics, University of Lodz, 3/5 POW, Lodz, PL-90255, Poland.
Economists proposed many theories explaining growth mechanisms. They also have done a lot of research on the topic of economic growth. There is, however, not much research which considers the mutual relationships between economic growth and financial market development. There are some examples of empirical research which show that financial market development is not only correlated with economic growth but it causes this growth. This mechanism results from the fact that financial market (mainly through the channel of stock exchange and the banking sector) extends capital for different investments in the economy. Such investment has an effect on economic growth through income and savings increase and profits of enterprises. It creates surplus of financial assets which in turn influences the development of financial market. To investigate the feedback between economic growth and financial markets in Poland we proposed a yearly econometric model during 1994-2005. The model was estimated and simulated. We also analyzed its economic and statistical properties with an enhanced algorithm for systematic regression analysis. The algorithm proposed was used to check for lag-length optimality of regressors and stability of relations within a recursive estimation. We also have performed a Granger causality analysis.