Abstract. This paper investigates the causal relationship between financial deepening and economic growth for fourteen upper middle income countries for the period during 1987-2015. Broad money supply, private credits, financial system deposit liabilities and deposit money banks’ assets are determined as proxies of financial deepening. Kónya (2006) bootstrap panel granger causality approach is used for this relationship based on Seemingly Unrelated Regression (SUR) model. Empirical findings indicate that countries can be clustered according to supply-leading and demand following approach. Besides, there exists evidence for bidirectional causality for some countries.

Keywords: financial deepening, supply-leading, demand-following, bootstrap, middle income.