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Economic Growth and Financial Depth: Is the Relationship Extinct Already?

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  • Paul Wachtel
  • Peter L. Rousseau

Abstract

Although the finance–growth nexus has become firmly entrenched in the empirical literature, studies that question the strength of the empirical results have appeared and seem to have become more frequent as well. A re-examination of the core cross- country panel results that established the relationship between financial depth and growth rates are done. The sensitivity of the core result to changes in time period and variation in the sample of countries included are also examined.

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Bibliographic Info

Paper provided by eSocialSciences in its series Working Papers with number id:3225.

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Date of creation: Nov 2010
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Handle: RePEc:ess:wpaper:id:3225

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Keywords: finance–growth nexus; rolling regression; robustness; cross-country growth;

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References

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  1. L. Deidda & B. Fattouh, 2001. "Non linearity between finance and growth," Working Paper CRENoS 200104, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  2. Beck, T.H.L. & Levine, R. & Loayza, N., 2000. "Financial intermediation and growth: Causality and causes," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125519, Tilburg University.
  3. 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.
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  6. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  7. Rousseau, Peter L. & Wachtel, Paul, 2002. "Inflation thresholds and the finance-growth nexus," Journal of International Money and Finance, Elsevier, Elsevier, vol. 21(6), pages 777-793, November.
  8. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  9. Rousseau, P. L. & Wachtel, P., 2000. "Equity markets and growth: Cross-country evidence on timing and outcomes, 1980-1995," Journal of Banking & Finance, Elsevier, Elsevier, vol. 24(12), pages 1933-1957, December.
  10. Manning Mark J, 2003. "Finance Causes Growth: Can We Be So Sure?," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 3(1), pages 1-24, December.
  11. Arestis, Philip & Demetriades, Panicos O & Luintel, Kul B, 2001. "Financial Development and Economic Growth: The Role of Stock Markets," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 33(1), pages 16-41, February.
  12. Ross Levine & Sara Zervos, . "Stock markets, banks and economic growth ," CERF Discussion Paper Series, Economics and Finance Section, School of Social Sciences, Brunel University 95-11, Economics and Finance Section, School of Social Sciences, Brunel University.
  13. Paul Wachtel, 2003. "How much do we really know about growth and finance?," Economic Review, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Q1, pages 33-47.
  14. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 34(2), pages 143-173, October.
  15. Rousseau, Peter L & Wachtel, Paul, 1998. "Financial Intermediation and Economic Performance: Historical Evidence from Five Industrialized Countries," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 30(4), pages 657-78, November.
  16. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, Elsevier, vol. 51(2), pages 387-411, December.
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Citations

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Cited by:
  1. Demirgüç-Kunt, A. & Beck, T.H.L. & Honohan, P., 2008. "Finance for all?: Policies and pitfalls in expanding access," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3508393, Tilburg University.
  2. Huang, Rocco R., 2008. "Evaluating the real effect of bank branching deregulation: Comparing contiguous counties across US state borders," Journal of Financial Economics, Elsevier, Elsevier, vol. 87(3), pages 678-705, March.
  3. George von Furstenberg & Ulf von Kalckreuth, 2007. "Dependence on External Finance by Manufacturing Sector: Examining the Measure and its Properties," Caepr Working Papers, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington 2007-001, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  4. Colombage, Sisira R.N., 2009. "Financial markets and economic performances: Empirical evidence from five industrialized economies," Research in International Business and Finance, Elsevier, Elsevier, vol. 23(3), pages 339-348, September.
  5. Laura Cojocaru & Saul Hoffman & Jeffrey Miller, 2011. "Financial Development and Economic Growth in Transition Economies: Empirical Evidence from the CEE and CIS Countries," Working Papers, University of Delaware, Department of Economics 11-22, University of Delaware, Department of Economics.
  6. Ramírez, Carlos D., 2009. "Bank fragility, "money under the mattress", and long-run growth: US evidence from the "perfect" Panic of 1893," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(12), pages 2185-2198, December.
  7. Beck, Thorsten & Degryse, Hans & Kneer, Christiane, 2014. "Is more finance better? Disentangling intermediation and size effects of financial systems," Journal of Financial Stability, Elsevier, Elsevier, vol. 10(C), pages 50-64.
  8. 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, Elsevier, vol. 37(12), pages 5373-5381.
  9. Eller, Markus & Haiss, Peter & Steiner, Katharina, 2006. "Foreign direct investment in the financial sector and economic growth in Central and Eastern Europe: The crucial role of the efficiency channel," Emerging Markets Review, Elsevier, Elsevier, vol. 7(4), pages 300-319, December.
  10. Soultanaeva, Albina, 2010. "Financial Intermediation and Economic Growth: Evidence from the Baltic countries," UmeÃ¥ Economic Studies, UmeÃ¥ University, Department of Economics 817, Umeå University, Department of Economics.
  11. Fink, Gerhard & Haiss, Peter & Vuksic, Goran, 2009. "Contribution of financial market segments at different stages of development: Transition, cohesion and mature economies compared," Journal of Financial Stability, Elsevier, Elsevier, vol. 5(4), pages 431-455, December.
  12. Katrin Tinn, 2010. "Technology Adoption with Exit in Imperfectly Informed Equity Markets," American Economic Review, American Economic Association, American Economic Association, vol. 100(3), pages 925-57, June.
  13. Beck, T.H.L. & Degryse, H.A. & Kneer, E.C., 2012. "Is More Finance Better? Disentangling Intermediation and Size Effects of Financial Systems," Discussion Paper, Tilburg University, Center for Economic Research 2012-060, Tilburg University, Center for Economic Research.
  14. Nevine Mokhtar Eid, 2008. "Financial Development: A Pre-Condition for Foreign Direct Spillover Effects in Egypt," Working Papers, The German University in Cairo, Faculty of Management Technology 12, The German University in Cairo, Faculty of Management Technology.
  15. Rewilak, Johan, 2013. "Finance is good for the poor but it depends where you live," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(5), pages 1451-1459.
  16. Hsueh, Shun-Jen & Hu, Yu-Hau & Tu, Chien-Heng, 2013. "Economic growth and financial development in Asian countries: A bootstrap panel Granger causality analysis," Economic Modelling, Elsevier, Elsevier, vol. 32(C), pages 294-301.

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