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Finance and the sources of growth

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  • Beck,Thorsten
  • Levine,Ross Eric
  • Loayza,Norman V.
  • Beck, Thorsten*Levine, Ross*Loayza, Norman

Abstract

The authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources-total factor productivity growth, physical capital accumulation, and private saving. They use (1) a pure cross-country instrumental variable estimator to extract the exogenous component of banking development and (2) a new panel technique that controls for country-specific effects and endogeneity. They find that: Banks do exert a large, causal impact on total factor productivity growth, which feeds through to overall GDP (Gross Domestic Product) growth. The long-run links between banking development and both capital growth and private savings are more tenuous.

Suggested Citation

  • Beck,Thorsten & Levine,Ross Eric & Loayza,Norman V. & Beck, Thorsten*Levine, Ross*Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2057
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