Advanced Search
MyIDEAS: Login

How much do we really know about growth and finance?

Contents:

Author Info

  • Paul Wachtel
Registered author(s):

    Abstract

    During the past twenty-five years, development economists have made a major shift toward a more mainstream, market-oriented approach to the financial sector. Economists now take for granted that a well-developed financial sector contributes to economic growth. But until recently there was surprisingly little solid evidence to support this view. ; This article assesses the econometric evidence about the finance-growth relationship. The author first describes the regression framework that has become the standard for assessing this relationship. He outlines some methodological reservations about the evidence used to establish this consensus, pointing out the drawbacks of using aggregate measures of activity. ; Over the last decade, a large body of empirical work using this framework has provided results that relate different dimensions of financial sector development to economic growth. The observed relationships in these studies appear convincingly to be causal, from finance to growth, and not the result of simultaneity or reverse causality. However, the author points out, the literature has not yet adequately explained what happens when the financial sector deepens or how that deepening affects behavior and economic growth. ; Research so far provides policymakers little guidance about how best to develop the financial sector or about the optimal sequence of developments. But the next generation of research has already begun to delve into the "black box." The author discusses a few of these studies that attempt to show how financial deepening effects are transmitted into the real sector.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.frbatlanta.org/filelegacydocs/erq103_wachtel.pdf
    Download Restriction: no

    Bibliographic Info

    Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

    Volume (Year): (2003)
    Issue (Month): Q1 ()
    Pages: 33-47

    as in new window
    Handle: RePEc:fip:fedaer:y:2003:i:q1:p:33-47:n:v.88no.1

    Contact details of provider:
    Postal: 1000 Peachtree St., N.E., Atlanta, Georgia 30309
    Phone: 404-521-8500
    Email:
    Web page: http://www.frbatlanta.org/
    More information through EDIRC

    Order Information:
    Email:

    Related research

    Keywords: Finance ; Economic development ; Income distribution ; Financial institutions;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Peter L. Rousseau, 2003. "Historical perspectives on financial development and economic growth," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 81-106.
    2. Luintel, Kul B. & Khan, Mosahid, 1999. "A quantitative reassessment of the finance-growth nexus: evidence from a multivariate VAR," Journal of Development Economics, Elsevier, vol. 60(2), pages 381-405, December.
    3. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    4. Jeffrey Wurgler, 1999. "Financial Markets And The Allocation Of Capital," Yale School of Management Working Papers ysm123, Yale School of Management, revised 01 Mar 2001.
    5. Levine, Ross & Zervos, Sara, 1996. "Stock Market Development and Long-Run Growth," World Bank Economic Review, World Bank Group, vol. 10(2), pages 323-39, May.
    6. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June.
    7. Randall Morck & Bernard Yeung & Wayne Yu, 1999. "The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements?," Harvard Institute of Economic Research Working Papers 1879, Harvard - Institute of Economic Research.
    8. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
    9. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
    10. Rousseau, Peter L & Wachtel, Paul, 1998. "Financial Intermediation and Economic Performance: Historical Evidence from Five Industrialized Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 657-78, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fip:fedaer:y:2003:i:q1:p:33-47:n:v.88no.1. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Meredith Rector).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.