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Finance and Growth: Theory and Evidence

In: Handbook of Economic Growth

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  • Levine, Ross

Abstract

This paper reviews, appraises, and critiques theoretical and empirical research on the connections between the operation of the financial system and economic growth. While subject to ample qualifications and countervailing views, the preponderance of evidence suggests that both financial intermediaries and markets matter for growth and that reverse causality alone is not driving this relationship. Furthermore, theory and evidence imply that better developed financial systems ease external financing constraints facing firms, which illuminates one mechanism through which financial development influences economic growth. The paper highlights many areas needing additional research.

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  • Philippe Aghion & Steven Durlauf (ed.), 2005. "Handbook of Economic Growth," Handbook of Economic Growth, Elsevier, edition 1, volume 1, number 1, December.
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    1. More Finance, More Growth? More Finance, More Crises?
      by Gerald Epstein in Triple Crisis on 2014-06-19 12:00:19
    2. More Finance, More Growth? More Finance, More Crises?
      by Yves Smith in Naked Capitalism on 2014-06-20 08:38:59
    3. What's a Central Bank Good For?
      by Stephen Williamson in Stephen Williamson: New Monetarist Economics on 2014-01-28 20:22:00
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