IDEAS home Printed from https://ideas.repec.org/p/cnb/wpaper/2013-05.html
   My bibliography  Save this paper

Financial Development and Economic Growth: A Meta-Analysis

Author

Listed:
  • Tomas Havranek
  • Roman Horvath
  • Petra Valickova

Abstract

We analyze 1334 estimates from 67 studies that examine the effect of financial development on economic growth. Taken together, the studies imply a positive and statistically significant effect, but the individual estimates vary widely. We find that both research design and heterogeneity in the underlying effect play a role in explaining the differences in results. Studies that do not address endogeneity tend to overstate the effect of finance on growth. While the effect seems to be weaker in less developed countries, the effect decreases worldwide after the 1980s. Our results also suggest that studies using stock-market-oriented measures as a proxy for financial development tend to report larger positive effects on growth. We find little evidence of publication bias in the literature.

Suggested Citation

  • Tomas Havranek & Roman Horvath & Petra Valickova, 2013. "Financial Development and Economic Growth: A Meta-Analysis," Working Papers 2013/05, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2013/05
    as

    Download full text from publisher

    File URL: https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_publications/cnb_wp/cnbwp_2013_05.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. T.D. Stanley & Hristos Doucouliagos, 2010. "Picture This: A Simple Graph That Reveals Much Ado About Research," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 170-191, February.
    2. Manning Mark J, 2003. "Finance Causes Growth: Can We Be So Sure?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-24, December.
    3. Beck, Thorsten & Levine, Ross, 2004. "Stock markets, banks, and growth: Panel evidence," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 423-442, March.
    4. Peter L. Rousseau & Paul Wachtel, 2011. "What Is Happening To The Impact Of Financial Deepening On Economic Growth?," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 276-288, January.
    5. De Gregorio, Jose & Guidotti, Pablo E., 1995. "Financial development and economic growth," World Development, Elsevier, vol. 23(3), pages 433-448, March.
    6. Donny Tang, 2006. "The effect of financial development on economic growth: evidence from the APEC countries, 1981-2000," Applied Economics, Taylor & Francis Journals, vol. 38(16), pages 1889-1904.
    7. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    8. Falko Fecht & Kevin X. D. Huang & Antoine Martin, 2008. "Financial Intermediaries, Markets, and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(4), pages 701-720, June.
    9. Asli Demirgüç-Kunt & Erik Feyen & Ross Levine, 2013. "The Evolving Importance of Banks and Securities Markets," The World Bank Economic Review, World Bank, vol. 27(3), pages 476-490.
    10. Michael Graff, 2003. "Financial Development and Economic Growth in Corporatist and Liberal Market Economies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 39(2), pages 47-69, March.
    11. Jean Arcand & Enrico Berkes & Ugo Panizza, 2015. "Too much finance?," Journal of Economic Growth, Springer, vol. 20(2), pages 105-148, June.
    12. Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Market Development and Financial Intermediaries: Stylized Facts," The World Bank Economic Review, World Bank, vol. 10(2), pages 291-321, May.
    13. Hassan, M. Kabir & Sanchez, Benito & Yu, Jung-Suk, 2011. "Financial development and economic growth: New evidence from panel data," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(1), pages 88-104, February.
    14. Laroche, P., 2000. "What do Unions do to Productivity? A Meta-Analysis," Papers 2000-5, Groupe de recherche en économie financière et en gestion des entreprises, Universite Nancy 2.
    15. Felix Rioja & Neven Valev, 2014. "Stock markets, banks and the sources of economic growth in low and high income countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(2), pages 302-320, April.
    16. Iršová, Zuzana & Havránek, Tomáš, 2013. "Determinants of Horizontal Spillovers from FDI: Evidence from a Large Meta-Analysis," World Development, Elsevier, vol. 42(C), pages 1-15.
    17. Doucouliagos, Chris & Ulubasoglu, Mehmet Ali, 2006. "Economic freedom and economic growth: Does specification make a difference?," European Journal of Political Economy, Elsevier, vol. 22(1), pages 60-81, March.
    18. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
    19. Deidda, Luca & Fattouh, Bassam, 2002. "Non-linearity between finance and growth," Economics Letters, Elsevier, vol. 74(3), pages 339-345, February.
    20. T. D. Stanley, 2005. "Beyond Publication Bias," Journal of Economic Surveys, Wiley Blackwell, vol. 19(3), pages 309-345, July.
    21. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
    22. Ergungor, O. Emre, 2008. "Financial system structure and economic growth: Structure matters," International Review of Economics & Finance, Elsevier, vol. 17(2), pages 292-305.
    23. Rousseau, Peter L. & Wachtel, Paul, 2002. "Inflation thresholds and the finance-growth nexus," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 777-793, November.
    24. Levine, Ross, 2002. "Bank-Based or Market-Based Financial Systems: Which Is Better?," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 398-428, October.
    25. Ho‐Chuan Huang & Shu‐Chin Lin, 2009. "Non‐linear finance–growth nexus," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(3), pages 439-466, July.
    26. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    27. Chris Doucouliagos, 2005. "Publication Bias in the Economic Freedom and Economic Growth Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 19(3), pages 367-387, July.
    28. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    29. Demirguc-Kunt, Ash & Maksimovic, Vojislav, 1996. "Stock Market Development and Financing Choices of Firms," The World Bank Economic Review, World Bank, vol. 10(2), pages 341-369, May.
    30. Liu, Wan-Chun & Hsu, Chen-Min, 2006. "The role of financial development in economic growth: The experiences of Taiwan, Korea, and Japan," Journal of Asian Economics, Elsevier, vol. 17(4), pages 667-690, October.
    31. Tomas Havranek & Zuzana Irsova, 2012. "Survey Article: Publication Bias in the Literature on Foreign Direct Investment Spillovers," Journal of Development Studies, Taylor & Francis Journals, vol. 48(10), pages 1375-1396, October.
    32. Calderon, Cesar & Liu, Lin, 2003. "The direction of causality between financial development and economic growth," Journal of Development Economics, Elsevier, vol. 72(1), pages 321-334, October.
    33. Marek Rusnak & Tomas Havranek & Roman Horvath, 2013. "How to Solve the Price Puzzle? A Meta‐Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 37-70, February.
    34. James B. Ang, 2008. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 536-576, July.
    35. Cole, Rebel A. & Moshirian, Fariborz & Wu, Qiongbing, 2008. "Bank stock returns and economic growth," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 995-1007, June.
    36. Bangake, Chrysost & Eggoh, Jude C., 2011. "Further evidence on finance-growth causality: A panel data analysis," Economic Systems, Elsevier, vol. 35(2), pages 176-188, June.
    37. Odedokun, M. O., 1996. "Alternative econometric approaches for analysing the role of the financial sector in economic growth: Time-series evidence from LDCs," Journal of Development Economics, Elsevier, vol. 50(1), pages 119-146, June.
    38. Anwar, Sajid & Cooray, Arusha, 2012. "Financial development, political rights, civil liberties and economic growth: Evidence from South Asia," Economic Modelling, Elsevier, vol. 29(3), pages 974-981.
    39. Doucouliagos, Hristos (Chris), 2011. "How large is large? Preliminary and relative guidelines for interpreting partial correlations in economics," Working Papers eco_2011_5, Deakin University, Department of Economics.
    40. Hristos Doucouliagos & T. D. Stanley, 2009. "Publication Selection Bias in Minimum‐Wage Research? A Meta‐Regression Analysis," British Journal of Industrial Relations, London School of Economics, vol. 47(2), pages 406-428, June.
    41. Havranek, Tomas & Irsova, Zuzana & Janda, Karel, 2012. "Demand for gasoline is more price-inelastic than commonly thought," Energy Economics, Elsevier, vol. 34(1), pages 201-207.
    42. T. D. Stanley, 2008. "Meta‐Regression Methods for Detecting and Estimating Empirical Effects in the Presence of Publication Selection," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(1), pages 103-127, February.
    43. 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.
    44. Daniel Giedeman & Ryan Compton, 2009. "A note on finance, inflation, and economic growth," Economics Bulletin, AccessEcon, vol. 29(2), pages 749-759.
    45. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    46. T.D. Stanley & Hristos Doucouliagos & Margaret Giles & Jost H. Heckemeyer & Robert J. Johnston & Patrice Laroche & Jon P. Nelson & Martin Paldam & Jacques Poot & Geoff Pugh & Randall S. Rosenberger & , 2013. "Meta-Analysis Of Economics Research Reporting Guidelines," Journal of Economic Surveys, Wiley Blackwell, vol. 27(2), pages 390-394, April.
    47. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    48. Hakan Yilmazkuday, 2011. "Thresholds in the Finance-Growth Nexus: A Cross-Country Analysis," The World Bank Economic Review, World Bank, vol. 25(2), pages 278-295, May.
    49. Yay, Gülsün & Oktayer, Asuman, 2009. "Financial Development and Economic Growth - A Comparative Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 6(3), pages 56-74, September.
    50. Chung-Hua Shen & Chien-Chiang Lee & Shyh-Wei Chen & Zixiong Xie, 2011. "Roles played by financial development in economic growth: application of the flexible regression model," Empirical Economics, Springer, vol. 41(1), pages 103-125, August.
    51. T. D. Stanley & Stephen B. Jarrell, 2005. "Meta‐Regression Analysis: A Quantitative Method of Literature Surveys," Journal of Economic Surveys, Wiley Blackwell, vol. 19(3), pages 299-308, July.
    52. Card, David & Krueger, Alan B, 1995. "Time-Series Minimum-Wage Studies: A Meta-analysis," American Economic Review, American Economic Association, vol. 85(2), pages 238-243, May.
    53. Cihak, Martin & Demirguc-Kunt, Asli & Feyen, Erik & Levine, Ross, 2013. "Financial Development in 205 Economies, 1960 to 2010," Journal of Financial Perspectives, EY Global FS Institute, vol. 1(2), pages 17-36.
    54. Hristos Doucouliagos & Martin Paldam, 2005. "Aid Effectiveness on Growth. A Meta Study," Economics Working Papers 2005-13, Department of Economics and Business Economics, Aarhus University.
    55. Bumann, Silke & Hermes, Niels & Lensink, Robert, 2013. "Financial liberalization and economic growth: A meta-analysis," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 255-281.
    56. Stephen Cecchetti & Enisse Kharroubi, 2012. "Reassessing the impact of finance on growth," BIS Working Papers 381, Bank for International Settlements.
    57. Peia, Oana & Roszbach, Kasper, 2015. "Finance and growth: Time series evidence on causality," Journal of Financial Stability, Elsevier, vol. 19(C), pages 105-118.
    58. Atje, Raymond & Jovanovic, Boyan, 1993. "Stock markets and development," European Economic Review, Elsevier, vol. 37(2-3), pages 632-640, April.
    59. Levine, Ross, 1999. "Law, Finance, and Economic Growth," Journal of Financial Intermediation, Elsevier, vol. 8(1-2), pages 8-35, January.
    60. Efendic, Adnan & Pugh, Geoff & Adnett, Nick, 2011. "Institutions and economic performance: A meta-regression analysis," European Journal of Political Economy, Elsevier, vol. 27(3), pages 586-599, September.
    61. Philippe Aghion & Steven Durlauf (ed.), 2005. "Handbook of Economic Growth," Handbook of Economic Growth, Elsevier, edition 1, volume 1, number 1.
    62. Havranek, Tomas & Irsova, Zuzana, 2011. "Estimating vertical spillovers from FDI: Why results vary and what the true effect is," Journal of International Economics, Elsevier, vol. 85(2), pages 234-244.
    63. Katarína Danišková & Jarko Fidrmuc, 2012. "Meta-Analysis of the New Keynesian Phillips Curve," Working Papers 314, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    64. T.D. Stanley & Hristos Doucouliagos & Margaret Giles & Jost Heckemeyer & Robert Johnston & Patrice Laroche & Jon Nelson & Martin Paldam & Jacques Poot & Geoff Pugh & Randall Rosenberger & Katja Rost, 2013. "Meta-analysis of economics research reporting guidelines," Post-Print hal-02137661, HAL.
    65. Naceur, Samy Ben & Ghazouani, Samir, 2007. "Stock markets, banks, and economic growth: Empirical evidence from the MENA region," Research in International Business and Finance, Elsevier, vol. 21(2), pages 297-315, June.
    66. Thomas Barnebeck Andersen & Finn Tarp, 2003. "Financial liberalization, financial development and economic growth in LDCs," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(2), pages 189-209.
    67. Luintel, Kul B. & Khan, Mosahid & Arestis, Philip & Theodoridis, Konstantinos, 2008. "Financial structure and economic growth," Journal of Development Economics, Elsevier, vol. 86(1), pages 181-200, April.
    68. Ross Levine, 2003. "More on finance and growth: more finance, more growth?," Review, Federal Reserve Bank of St. Louis, vol. 85(Jul), pages 31-46.
    69. Shen, Chung-Hua & Lee, Chien-Chiang, 2006. "Same Financial Development Yet Different Economic Growth: Why?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1907-1944, October.
    70. Eric Krassoi Peach & T. Stanley, 2009. "Efficiency Wages, Productivity and Simultaneity: A Meta-Regression Analysis," Journal of Labor Research, Springer, vol. 30(3), pages 262-268, September.
    71. Edwards, Sebastian, 1996. "Why are Latin America's savings rates so low? An international comparative analysis," Journal of Development Economics, Elsevier, vol. 51(1), pages 5-44, October.
    72. Jung-Suk Yu & M. Kabir Hassan & Benito Sanchez, 2012. "A re-examination of financial development, stock markets development and economic growth," Applied Economics, Taylor & Francis Journals, vol. 44(27), pages 3479-3489, September.
    73. T. D. Stanley, 2001. "Wheat from Chaff: Meta-analysis as Quantitative Literature Review," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 131-150, Summer.
    74. Rati Ram, 1999. "Financial development and economic growth: Additional evidence," Journal of Development Studies, Taylor & Francis Journals, vol. 35(4), pages 164-174.
    75. Philip Arestis & Ambika Luintel & Kul Luintel, 2010. "Financial structure and economic growth: evidence from time series analyses," Applied Financial Economics, Taylor & Francis Journals, vol. 20(19), pages 1479-1492.
    76. Chris Doucouliagos & T.D. Stanley, 2013. "Are All Economic Facts Greatly Exaggerated? Theory Competition And Selectivity," Journal of Economic Surveys, Wiley Blackwell, vol. 27(2), pages 316-339, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. James B. Ang, 2008. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 536-576, July.
    2. Guangdong Xu, 2022. "From financial structure to economic growth: Theory, evidence and challenges," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 51(1), February.
    3. Rudra P. Pradhan & Mak B. Arvin & John H. Hall & Sahar Bahmani, 2014. "Causal nexus between economic growth, banking sector development, stock market development, and other macroeconomic variables: The case of ASEAN countries," Review of Financial Economics, John Wiley & Sons, vol. 23(4), pages 155-173, November.
    4. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries," World Development, Elsevier, vol. 68(C), pages 66-81.
    5. Chung-Hua Shen & Chien-Chiang Lee & Shyh-Wei Chen & Zixiong Xie, 2011. "Roles played by financial development in economic growth: application of the flexible regression model," Empirical Economics, Springer, vol. 41(1), pages 103-125, August.
    6. Philip Arestis & Georgios Chortareas & Georgios Magkonis, 2015. "The Financial Development And Growth Nexus: A Meta-Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 29(3), pages 549-565, July.
    7. Jean Arcand & Enrico Berkes & Ugo Panizza, 2015. "Too much finance?," Journal of Economic Growth, Springer, vol. 20(2), pages 105-148, June.
    8. Pradhan, Rudra P. & Arvin, Mak B. & Bahmani, Sahar & Hall, John H. & Norman, Neville R., 2017. "Finance and growth: Evidence from the ARF countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 136-148.
    9. Michiel Bijlsma & Clemens Kool & Marielle Non, 2018. "The effect of financial development on economic growth: a meta-analysis," Applied Economics, Taylor & Francis Journals, vol. 50(57), pages 6128-6148, December.
    10. Michael A. Stemmer, 2017. "Revisiting Finance and Growth in Transition Economies - A Panel Causality Approach," Documents de travail du Centre d'Economie de la Sorbonne 17022, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    11. Ruiz, Jose L., 2018. "Financial development, institutional investors, and economic growth," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 218-224.
    12. Richard E. Itaman, 2022. "The finance‐growth nexus enigma: Bringing in institutional context and the productiveness debate," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 504-527, April.
    13. Stolbov, Mikhail, 2013. "The finance-growth nexus revisited: From origins to a modern theoretical landscape," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 7, pages 1-22.
    14. Kirikkaleli, Dervis & Athari, Seyed Alireza, 2020. "Time-frequency co-movements between bank credit supply and economic growth in an emerging market: Does the bank ownership structure matter?," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    15. Havranek, Tomas & Horvath, Roman & Zeynalov, Ayaz, 2016. "Natural Resources and Economic Growth: A Meta-Analysis," World Development, Elsevier, vol. 88(C), pages 134-151.
    16. Gnangnon, Sèna Kimm, 2019. "Financial Development and Tax Revenue in Developing Countries: Investigating the International Trade and Economic Growth Channels," EconStor Preprints 206628, ZBW - Leibniz Information Centre for Economics.
    17. Law, Siong Hook & Singh, Nirvikar, 2014. "Does too much finance harm economic growth?," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 36-44.
    18. Law, Siong Hook & Azman-Saini, W.N.W. & Ibrahim, Mansor H., 2013. "Institutional quality thresholds and the finance – Growth nexus," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5373-5381.
    19. Michiel Bijlsma & Andrei Dubovik, 2014. "Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature," CPB Discussion Paper 266, CPB Netherlands Bureau for Economic Policy Analysis.
    20. Gunther Capelle-Blancard, 2018. "What is the Point of (the Hundreds of Thousands of Billions of) Stock Transactions?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 60(1), pages 15-33, March.

    More about this item

    Keywords

    Development; finance; growth; meta-analysis.;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cnb:wpaper:2013/05. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jan Babecky (email available below). General contact details of provider: https://edirc.repec.org/data/cnbgvcz.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.