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Financial intermediation and economic growth in developing countries

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  • M.O. Odedokun
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    Abstract

    Presents a model that is suitable for evaluating not only the total effects of financial intermediation on economic growth, but also the channels through which the effects are brought about. These two channels are: the externality of financial on the real sector and the inter-sectoral differential between financial and real sectors in the productivity of factors of production. Also presented is the conventional and rather ad hoc model for evaluating the effect of financial intermediation on economic growth. All the models were estimated with cross-sectional data over the 1970s and 1980s for 90 developing countries and the main findings are that: financial intermediation exerts positive effects on economic growth in developing countries; the two postulated channels of the effects of financial intermediation are both relevant in developing countries; and financial depth, defined as the ratio of financial aggregates to GDP, promotes economic growth in only low-income developing countries while it has no effect in high-income ones.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

    Volume (Year): 25 (1998)
    Issue (Month): 3 (September)
    Pages: 203-224

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    Handle: RePEc:eme:jespps:v:25:y:1998:i:3:p:203-224

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    Related research

    Keywords: Developing countries; Economic growth;

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    Cited by:
    1. Hwang, Jen-Te & Chung, Chien-Ping & Wang, Chieh-Hsuan, 2010. "Debt Overhang, Financial Sector Development And Economic Growth," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 51(1), pages 13-30, June.
    2. Muhammad Arshad Khan & Abdul Qayyum, 2007. "Trade Liberalisation, Financial Development and Economic Growth," PIDE-Working Papers 2007:19, Pakistan Institute of Development Economics.
    3. Morgan, Horatio M., 2013. "Financial Development and Economic Growth: New Lessons from Small Open Economies," MPRA Paper 49842, University Library of Munich, Germany.
    4. Samiran Chakraborty, 2002. "Aspects of Financial Reforms In the Presence of Product Market Imperfection," Working papers 105, Centre for Development Economics, Delhi School of Economics.
    5. Sinha, Dipendra & Macri, Joseph, 2001. "Financial development and economic growth: The case of eight Asian countries," MPRA Paper 18297, University Library of Munich, Germany.
    6. Khan, Arshad & Qayyum, Abdul & Sheikh, Saeed, 2005. "Financial Development and Economic Growth: The Case of Pakistan," MPRA Paper 2145, University Library of Munich, Germany, revised 2005.
    7. Khan, M. Arshad & Qayyum, Abdul, 2006. "Trade Liberalization, Financial Sector Reforms and Growth," MPRA Paper 2655, University Library of Munich, Germany, revised 2006.

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