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Finance and Growth: A Survey of the Theoretical and Empirical Literature

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  • Felix Eschenbach

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    (Department of Economics, Erasmus Universiteit Rotterdam, and Tinbergen Institute)

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    Abstract

    This paper reviews the theoretical and empirical literature on links between domestic financial development and economic growth. It starts with the pioneers in this field and then classifies two main schools favouring liberal financial regimes. First McKinnon and Shaw advocated financial liberalization in a period of widespread government intervention in credit markets. After that a period of criticism of free market regimes followed, partly based on unsuccessful policies. The literature on financial development and endogenous growth pushed the discussion back into the direction initially advocated by McKinnon and Shaw. We review a huge body of empirical literature, which generally finds positive associations between domestic financial development and economic growth. The evidence suggests, however, enormous heterogeneity across countries, regions, financial factors, and directions of causality.

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    Bibliographic Info

    Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-039/2.

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    Date of creation: 08 Apr 2004
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    Handle: RePEc:dgr:uvatin:20040039

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    Keywords: Financial Liberalization; Financial Development; Endogenous Growth;

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    Cited by:
    1. Moretti, Luigi, 2008. "Bank Concentration and Structure of Manufacturing Sectors: Differences Between High and Low Income Countries," MPRA Paper 18867, University Library of Munich, Germany.
    2. Hasanov, Fakhri & Huseynov, Fariz, 2013. "Bank credits and non-oil economic growth: Evidence from Azerbaijan," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 597-610.

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