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Financial development, structure and growth: New data, method and results

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  • Luintel, Kul B.
  • Khan, Mosahid
  • Leon-Gonzalez, Roberto
  • Li, Guangjie

Abstract

The existing weight of evidence suggests that financial structure (the classification of a financial system as bank-based versus market-based) is irrelevant for economic growth. This contradicts the common belief that the institutional structure of a financial system matters. We re-examine this issue using a novel dataset covering 69 countries over 1989–2011 in a Bayesian framework. Our results are conformable to the belief – a market-based system is relevant – with sizable economic effects for the high-income but not for the middle-and-low-income countries. Our findings provide a counterexample to the weight of evidence. We also identify a regime shift in 2008.

Suggested Citation

  • Luintel, Kul B. & Khan, Mosahid & Leon-Gonzalez, Roberto & Li, Guangjie, 2016. "Financial development, structure and growth: New data, method and results," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 43(C), pages 95-112.
    • Handle: RePEc:eee:intfin:v:43:y:2016:i:c:p:95-112
    DOI: 10.1016/j.intfin.2016.04.002
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    More about this item

    Keywords

    Financial structure; Economic growth; Cointegration; Bayesian model averaging; Structural breaks;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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