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Uncertainty, financial development and economic growth: an empirical analysis

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  • Lensink, Robert

    (Groningen University)

Abstract

This paper examines whether financial sector development may partly undo growth-reducing effects of policy uncertainty. By performing a cross-country growth regression for the 1970-1995 period I find evidence that countries with a more developed financial sector are better able to nullify the negative effects of policy uncertainty on per capita economic growth. For countries with a very well developed financial sector, it may even be the case that an increase in policy uncertainty positively affects per capita economic growth. This clearly indicates the relevance of financial sector development.

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File URL: http://irs.ub.rug.nl/ppn/187693250
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Bibliographic Info

Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 99E37.

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Date of creation: 1999
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Handle: RePEc:dgr:rugsom:99e37

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  1. Xavier Sala-i-Martin, 1997. "I just ran four million regressions," Economics Working Papers 201, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-33, March.
  3. Bruce C. Greenwald & Joseph E. Stiglitz & Andrew Weiss, 1989. "Macroeconomic models with equity and credit rationing," Proceedings, Federal Reserve Bank of San Francisco.
  4. Ghosal, Vivek, 1991. "Demand Uncertainty and the Capital-Labor Ratio: Evidence from the U.S. Manufacturing Sector," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 157-61, February.
  5. Vivek Ghosal & Prakash Loungani, 2000. "The Differential Impact of Uncertainty on Investment in Small and Large Businesses," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 338-343, May.
  6. Andrew B. Abel & Janice C. Eberly, . "A Unified Model of Investment Under Uncertainty," Rodney L. White Center for Financial Research Working Papers 14-93, Wharton School Rodney L. White Center for Financial Research.
  7. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-81, September.
  8. Guillermo A. Calvo, 1988. "Costly Trade Liberalizations: Durable Goods and Capital Mobility," IMF Staff Papers, Palgrave Macmillan, vol. 35(3), pages 461-473, September.
  9. Aizenman, Joshua & Marion, Nancy P. & Marion, Nancy P., 1993. "Macroeconomic uncertainty and private investment," Economics Letters, Elsevier, vol. 41(2), pages 207-210.
  10. repec:fth:wobaco:1083 is not listed on IDEAS
  11. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  12. Ben S. Bernanke, 1980. "Irreversibility, Uncertainty, and Cyclical Investment," NBER Working Papers 0502, National Bureau of Economic Research, Inc.
  13. Ghosal, Vivek, 1995. "Input Choices under Price Uncertainty," Economic Inquiry, Western Economic Association International, vol. 33(1), pages 142-58, January.
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