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Financial Intermediation and Growth: Theory and Some Cross-Country Evidence

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  • Tayyeb Shabbir

    (Pakistan Institute of Development Economics, Islamabad.)

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    Abstract

    Well-functioning financial markets can have a positive effect on economic growth by facilitating savings and more efficient allocation of capital. This paper characterises some of the recent theoretical developments that analyse the relationship between financial intermediation and economic growth and presents empirical estimates based on a model of the linkage between financially intermediated investment and growth for two separate groups of countries, developing and advanced. Empirical estimates for both groups suggest that financial intermediation through the efficiency of investment leads to a higher rate of growth per capita. The relevant coefficient estimates show a higher level of significance for the developing countries. This financial liberalisation in the form of deregulation and establishment and development of stock markets can be expected to lead to enhanced economic growth.

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    File URL: http://www.pide.org.pk/pdf/PDR/1997/Volume4/855-862.pdf
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    Bibliographic Info

    Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

    Volume (Year): 36 (1997)
    Issue (Month): 4 ()
    Pages: 855-862

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    Handle: RePEc:pid:journl:v:36:y:1997:i:4:p:855-862

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    1. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    2. Greenwood, Jeremy & Jovanovic, Boyan, 1988. "Financial Development, Growth, And The Distribution Of Income," Working Papers, C.V. Starr Center for Applied Economics, New York University 88-12, C.V. Starr Center for Applied Economics, New York University.
    3. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
    4. Atje, Raymond & Jovanovic, Boyan, 1993. "Stock markets and development," European Economic Review, Elsevier, vol. 37(2-3), pages 632-640, April.
    5. Dailami, Mansoor & Atkin, Michael, 1990. "Stock markets in developing countries : key issues and a research agenda," Policy Research Working Paper Series 515, The World Bank.
    6. Pablo Emilio Guidotti & Jose De Gregorio, 1992. "Financial Development and Economic Growth," IMF Working Papers 92/101, International Monetary Fund.
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