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Finance and the sources of growth

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Author Info
Beck, Thorsten
Levine, Ross
Loayza, Norman

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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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2057.

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Date of creation: 28 Feb 1999
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Handle: RePEc:wbk:wbrwps:2057

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Related research
Keywords: Economic Theory&Research; Banks&Banking Reform; Fiscal&Monetary Policy; Environmental Economics&Policies; Decentralization; Economic Theory&Research; Banks&Banking Reform; Achieving Shared Growth; Economic 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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  2. Gertler, Mark, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(3), pages 559-88, August. [Downloadable!] (restricted)
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  3. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
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  5. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-51, August.
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  7. Alonso-Borrego, Cesar & Arellano, Manuel, 1999. "Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 36-49, January.
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  12. Nehru, Vikram & Dhareshwar, Ashok & DEC, 1994. "New estimates of total factor productivity growth for developing and industrial countries," Policy Research Working Paper Series 1313, The World Bank. [Downloadable!]
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  17. 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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  18. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier. [Downloadable!] (restricted)
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  20. Greenwood, Jeremy & Smith, Bruce D., 1997. "Financial markets in development, and the development of financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 145-181, January. [Downloadable!] (restricted)
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  21. Easterly, William, 1999. " Life during Growth," Journal of Economic Growth, Springer, vol. 4(3), pages 239-76, September. [Downloadable!] (restricted)
  22. Klenow, Peter J., 1998. "Ideas versus rival human capital: Industry evidence on growth models," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 3-23, June. [Downloadable!] (restricted)
  23. 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. [Downloadable!] (restricted)
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  24. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
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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)
  26. Harberger, Arnold C, 1998. "A Vision of the Growth Process," American Economic Review, American Economic Association, vol. 88(1), pages 1-32, March.
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  30. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November. [Downloadable!] (restricted)
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  33. Klaus Neusser & Maurice Kugler, 1998. "Manufacturing Growth And Financial Development: Evidence From Oecd Countries," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 638-646, November. [Downloadable!] (restricted)
  34. Psacharopoulos, George, 1994. "Returns to investment in education: A global update," World Development, Elsevier, vol. 22(9), pages 1325-1343, September. [Downloadable!] (restricted)
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  35. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December. [Downloadable!] (restricted)
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  36. 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, vol. 30(4), pages 657-78, November.
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  38. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April. [Downloadable!] (restricted)
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