The evolving financial landscape: analyzing uncertainty, risks, and growth in G7 economies of the 21st century

Abstract

This study provides a comprehensive analysis of the financial markets in the 21'st century; focusing on the G7 countries: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The justification for this research originates from the significant role these markets plays in the global economy and the need to understand their complexities in relation to risk, uncertainty, and economic growth. The primary objective is to empiricaly investigate the dynamics and correlations of these aspects within the financial markets of the countries selected in this study. The study is based on secondary data spanning 12 years, from 2010 to 2021, covering all 7 countries, and making it a panel data analysis. Methodologically, the research employs various econometric models and techniques, including Ordinary Least Squares, OLS Robust, and fixed and random effects models. The empirical results suggest that the fixed effects model is the most suitable for this study, as confirmed by the Hausman test. According to this model, a 1% increase in stock market capitalization relative to GDP positively impacts GDP growth by 0.06. Furthermore, stock market value trades were found to have a positive correlation with economic growth. In contrast, stock price volatility and pension fund assets negatively impact economic growth. Notably, these findings diverge from some previous studies in the field. In conclusion, the research provides valuable insights into the relationship between financial markets and economic indicators in the G7 countries, thereby offering policy-makers a more nuanced understanding of how to foster economic growth while mitigating risks.