The Impact of Central Bank Independence on Economic Growth: A Cross-Section Analysis

The central bank is one of the main pillars of the economic policymaking in different countries and its performance has significant impact overall economy. One of the determinants of the central bankʹs performance is the degree of its independence and its relationship with the government. Recently, there have been discussions on this issue and several studies tackled the problem. In addition, in order to quantify central bank independence, several indices introduced in the literature. This research reviews the relationship between central bank independence and economic growth (19952004). For this to be done, two indices, degree of legal independence of the central bank and turnover rate of central bank governor, are used and with a cross-section regression analysis using the data of 53 countries the issue has been investigated. The result is that legal independence of the central bank does not have any impact on economic growth. On the contrary, turnover rate of central bank governor has negative impact on economic growth, which is due to instability of monetary policy implemented by the central bank because of repeatedly changing of the central bank governor