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Stock markets, banks, and growth : correlation or causality?

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  • Beck, Thorsten
  • Levine, Ross

Abstract

The authors investigate the impact of stock markets and banks on economic growth using a panel data set for 1976-98 and applying recent generalized method of moments (GMM) techniques developed for dynamic panels. The authors illustrate econometrically the differences that emerge from different panel procedures. On balance, stock markets and banks positively influence economic growth--and these findings are not a result of biases induced by simulaneity, omitted variables, or inobserved country-specific effects.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2670.

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Date of creation: 30 Sep 2001
Date of revision:
Handle: RePEc:wbk:wbrwps:2670

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Related research

Keywords: Payment Systems&Infrastructure; Economic Theory&Research; Financial Intermediation; Banks&Banking Reform; Health Economics&Finance; Economic Theory&Research; Achieving Shared Growth; Financial Intermediation; Governance Indicators; Health Economics&Finance;

References

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  1. Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0037, National Bureau of Economic Research, Inc.
  2. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers, Institute for Fiscal Studies W95/17, Institute for Fiscal Studies.
  3. Beck, T.H.L. & Levine, R. & Loayza, N., 2000. "Finance and the sources of growth," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-3125520, Tilburg University.
  4. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank.
  5. Thorsten Beck & Ross Levine & Norman Loayza, 1999. "Financial Intermediation and Growth: Causality and Causes," Working Papers Central Bank of Chile, Central Bank of Chile 56, Central Bank of Chile.
  6. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers, Centre for Economic Performance, LSE dp0007, Centre for Economic Performance, LSE.
  7. Bencivenga Valerie R. & Smith Bruce D. & Starr Ross M., 1995. "Transactions Costs, Technological Choice, and Endogenous Growth," Journal of Economic Theory, Elsevier, Elsevier, vol. 67(1), pages 153-177, October.
  8. Levine, Ross, 1998. "The Legal Environment, Banks, and Long-Run Economic Growth," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 30(3), pages 596-613, August.
  9. Calderon Cesar Augusto & Chong Alberto & Loayza Norman V., 2002. "Determinants of Current Account Deficits in Developing Countries," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 2(1), pages 1-33, March.
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  13. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, Elsevier, vol. 47(2), pages 221-248, April.
  14. Levine, Ross & Zervos, Sara, 1996. "Stock markets, banks, and economic growth," Policy Research Working Paper Series 1690, The World Bank.
  15. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  16. 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, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  17. Stiglitz, Joseph E, 1985. "Credit Markets and the Control of Capital," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 17(2), pages 133-52, May.
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  24. repec:fth:wobaco:1083 is not listed on IDEAS
  25. Atje, Raymond & Jovanovic, Boyan, 1993. "Stock markets and development," European Economic Review, Elsevier, Elsevier, vol. 37(2-3), pages 632-640, April.
  26. Levine, Ross, 1999. "Law, Finance, and Economic Growth," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 8(1-2), pages 8-35, January.
  27. Alonso-Borrego, Cesar & Arellano, Manuel, 1999. "Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 17(1), pages 36-49, January.
  28. 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.
  29. Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, American Finance Association, vol. 46(4), pages 1445-65, September.
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Citations

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Cited by:
  1. Alessandra Bonfiglioli, 2006. "Financial integration, productivity and capital accumulation," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 988, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Karsten Staehr, 2005. "Reforms and Economic Growth in Transition Economies: Complementarity, Sequencing and Speed," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 2(2), pages 177-202, December.
  3. George Furstenberg & Ulf Kalckreuth, 2006. "Dependence on External Finance: An Inherent Industry Characteristic?," Open Economies Review, Springer, Springer, vol. 17(4), pages 541-559, December.
  4. 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.
  5. Giovanni Favarra, 2003. "An Empirical Reassessment of the Relationship Between Finance and Growth," IMF Working Papers, International Monetary Fund 03/123, International Monetary Fund.
  6. Buch, Claudia M. & Doepke, Joerg & Pierdzioch, Christian, 2005. "Financial openness and business cycle volatility," Journal of International Money and Finance, Elsevier, Elsevier, vol. 24(5), pages 744-765, September.
  7. Bonfiglioli, Alessandra, 2005. "How Does Financial Liberalization affect Economic Growth?," Seminar Papers, Stockholm University, Institute for International Economic Studies 736, Stockholm University, Institute for International Economic Studies.
  8. Alessandra Bonfiglioli & Caterina Mendicino, 2005. "Financial Liberalization, Bank Crises and Growth: Assessing the links," Departmental Working Papers of Economics - University 'Roma Tre', Department of Economics - University Roma Tre 0044, Department of Economics - University Roma Tre.
  9. Mariani, Fabio & Padoan, Pierre Carlo, 2003. "The Growth-Finance Nexus and European Integration: A Macroeconomic Perspective," EIFC - Technology and Finance Working Papers, United Nations University, Institute for New Technologies 23, United Nations University, Institute for New Technologies.
  10. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross & Maksimovic, Vojislav, 2000. "Financial structure and economic development - firm, industry, and country evidence," Policy Research Working Paper Series 2423, The World Bank.
  11. Arena, Marco, 2006. "Does insurance market activity promote economic growth ? Country study for industrial and developing countries," Policy Research Working Paper Series 4098, The World Bank.
  12. Jellal, Mohamed, 2014. "Diaspora transferts finance et développement économique
    [Diaspora remittances finance and economic development]
    ," MPRA Paper 57410, University Library of Munich, Germany.
  13. Jorg Dopke, 2004. "How Robust is the Empirical Link between Business-Cycle Volatility and Long-Run Growth in OECD Countries?," International Review of Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 18(1), pages 1-23.
  14. Bonfiglioli, Alessandra & Mendicino, Caterina, 2004. "Financial Liberalization, Banking Crises and Growth: Assessing the Links," Working Paper Series in Economics and Finance, Stockholm School of Economics 567, Stockholm School of Economics.

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