Interdependence of Macroeconomic Factors and Economic Growth in OECD Countries: Evidence Based on a Bayesian Panel VAR Model

Abstract

This study examines the interdependency between macroeconomics factors, specifically financial development, industrial structure, and gross capital formation and economic growth in OECD countries including Austria, Belgium, Denmark, France, Greece, Iceland, Ireland, Italy, Luxembourg, Norway, the Netherlands, Portugal, United Kingdom, Sweden, Switzerland, Turkey, United States, and Germany. We use panel data of these 18 countries from 2001 to 2016 to examine their macroeconomic interdependency using the Bayesian panel vector autoregression model. Four different priors are used to combine with the likelihood of the model, and the results show that stochastic search variable selection prior is selected as it gives the lowest MSE and MAD. The empirical results show that there exists the interdependence among macroeconomic factors and economic growth in OECD countries.