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Does finance matter for growth? what the data show

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  • Sarkar, Prabirjit

Abstract

This paper analyses the relationship between financial development (as measured by expansion of domestic credit to private sector relative to GDP) and growth for a sample of 65 less developed countries over a long period, 1980-2006. Using causality tests at various lag-orders we find a strong evidence of mutual causation. We have used alternative dynamic panel data models to estimate the relationships between the two. While the mean group model suggests no relationship in either direction, the pooled mean group model and dynamic fixed effect model show two opposite long-term relationships: finance-to-growth relationship is negative whereas growth-to-finance link is positive.

Suggested Citation

  • Sarkar, Prabirjit, 2011. "Does finance matter for growth? what the data show," MPRA Paper 32937, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:32937
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    More about this item

    Keywords

    financial development; growth; dynamic panel data analysis;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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