This study was condcuted to assess the role of financial development and technological development in economic growth for Romanian economy using yearly data from 1985-2011.We applied the ARDL bounds testing coinetgration and the VECM Granger causality to examine the causal relationship between the variables.
Our results imply that cointegartion exists between finnacial development, technological development and economic growth in case of Romania. Financial development and technological development add in economic growth. Comparatively, technological development explains more variations in the economic growth. Financial development Granger causes technological development. Further, technological development and economic growth are complimentary. The overall results suggest that financial development in Romania plays a significant role in channeling fund to firms to stimulate the innovative capabilities. Conseqently, innovative capabilities facilitate in translating Romanian economy into technological development and thus in economic growth.Financial development supports technological development which further translates its effect into economic growth. The facilitation of technological innovation via low cost production methods can stimulate financial development and hence economic growth. Another plausible policy implication would be the creation of state-of-the-art research and technological incubation centers by authorizing several public or private sector research institution in a collaboration with private firms through special innovation grants, which can instigate new course in innovation research, which can potentially propel technological development and thus economic growth. Potential orientation of technological innovation for future policy measure may include targeted long-term innovation policies for improving
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technological transfer and updating the existing ICT infrastructure. The long-term technological innovation policy and subsequent support from government would fairly reduce the uncertainties involved in such process. Further, to strengthen the financial system and capital market in Romania, it is suggested that policy makers need to focus on the minimizing the risk exposures of Romanian banking sector from the spillover effect of other EU region financial sectors. It is also imperative to authorities in Romanian financial sector to focus on maintaining high capital advocacy to promote technological and economic development.
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