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Stock markets, banks, and economic growth

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Author Info
Levine, Ross
Zervos, Sara

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Abstract

Using data on 49 countries from 1976 to 1993, the authors investigate whether measures of stock market liquidity, size, volatility, and integration in world capital markets predict future rates of economic growth, capital accumulation, productivity improvements, and private savings. They find that stock market liquidity-as measured by stock trading relative to the size of the market and economy - is positivelyand significantly correlated with current and future rates of economic growth, capital accumulation, productivity growth, even after controlling for economic and political factors. Stock market size, volatility, and integration are not robustly linked with growth. Nor are financial indicators closely associated with private savings rates. Significantly, banking development -as measured by bank loans to private enterprises divided by GDP -when combined with stock market liquidity predicts future rates of growth, capital accumulation, and productivity growth when entered together in regressions. The authors determine that these results are consistent with views that (1)financial markets and institutions provide important services for long-run growth, and (2)stock markets and banks provide different financial services.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1690.

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Date of creation: 31 Dec 1996
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Handle: RePEc:wbk:wbrwps:1690

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Related research
Keywords: Economic Theory&Research; Banks&Banking Reform; Fiscal&Monetary Policy; Financial Intermediation; Payment Systems&Infrastructure; Economic Theory&Research; Banks&Banking Reform; Financial Intermediation; Achieving Shared Growth; Governance Indicators;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  18. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 195-209, April. [Downloadable!] (restricted)
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  22. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank. [Downloadable!]
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  23. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June. [Downloadable!] (restricted)
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  25. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December. [Downloadable!] (restricted)
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  34. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 1996. "Financial constraints, uses of funds, and firm growth : an international comparison," Policy Research Working Paper Series 1671, The World Bank. [Downloadable!]
  35. Korajczyk, Robert A, 1996. "A Measure of Stock Market Integration for Developed and Emerging Markets," World Bank Economic Review, Oxford University Press, vol. 10(2), pages 267-89, May.
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  36. Catherine Bonser-Neal & Kathryn L. Dewenter, 1996. "Does financial market development stimulate savings? Evidence from emerging market stock markets," Research Working Paper 96-09, Federal Reserve Bank of Kansas City. [Downloadable!]
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