The theoretical studies and empirical evidences have shown that countries with developed financial systems have experienced higher and speedier growth. Developed financial markets have positive and significant impact on productivity and growth and as a result higher long-term economic growth. This study examines the empirical relationship between financial markets (including bank and insurance) and economic growth using time series data over 1971-2010. In addition, the long-run relationship will be carried out using the cointegration and Granger causality methods. The results show that the causality between growth and banking sector is running in both ways; economic growth leads to increases in banking industries activities and also developed banking industry results in higher growth. However, the causality between insurance sector and growth is running only in one way, from insurance industry to economic growth. Finally, more developed bank sector has resulted in more developed insurance sector.
