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Financial indicators and growth in a cross section of countries

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Author Info

  • King, Robert G.
  • Levine, Ross

Abstract

The authors use existing measures of the financial system - and construct many new measures - to document the relationship between the financial system and long-run growth in a cross-section of countries between 1960 and 1989. They consider various measures of the size of the financial system, the importance of different financial institutions, the financial system's allocation of credit, the financial system's efficiency, and the degree of financial repression. They use graphs, correlations, and regressions to gauge the robustness of the partial correlation between growth and the financial indicators. They also examine two channels through which financial indicators may be linked to growth: the share of GDP allocated to investment; and the efficiency with which resources are used. They find that many of the financial system indicators are significantly correlated with growth through both investment and efficiency. Moreover, many of these partial correlations remain strong after controlling for initial conditions, dummy variables for Africa and Latin America, and measures of monetary, fiscal, and trade performance. Their analysis suggests that it is empirically important to identify which financial intermediaries aredoing the intermediation and to whom the financial system is allocating credit rather than simply using proxies for the overall size of the financial system, as has been common in past studies.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 819.

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Date of creation: 31 Jan 1992
Date of revision:
Handle: RePEc:wbk:wbrwps:819

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Related research

Keywords: Economic Theory&Research; Macroeconomic Management; Financial Economics; Achieving Shared Growth; Governance Indicators;

References

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  1. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  2. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
  3. Gelb, Alan H., 1989. "Financial policies, growth, and efficiency," Policy Research Working Paper Series 202, The World Bank.
  4. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  5. Nouriel Roubini & Xavier Sala-i-Martin, 1991. "Financial Repression and Economic Growth," NBER Working Papers 3876, National Bureau of Economic Research, Inc.
  6. De Long, J Bradford & Summers, Lawrence H, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 445-502, May.
  7. Gertler, M. & Rose, A., 1991. "Finance, growth, and public policy," Policy Research Working Paper Series 814, The World Bank.
  8. Giovannini, Alberto & de Melo, Martha, 1990. "Government revenue from financial repression," Policy Research Working Paper Series 533, The World Bank.
  9. Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-65, September.
  10. Bencivenga, V.R. & Smith, B.D., 1990. "Deficits, Inflation, And The Banking System In Developing Countries: The Optimal Degree Of Financial Repression," RCER Working Papers 214, University of Rochester - Center for Economic Research (RCER).
  11. Stiglitz, Joseph E, 1989. "Financial Markets and Development," Oxford Review of Economic Policy, Oxford University Press, vol. 5(4), pages 55-68, Winter.
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Citations

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Cited by:
  1. Clarke, George R. & Cull, Robert, 1998. "Why privatize? : the case of Argentina's public provincial banks," Policy Research Working Paper Series 1972, The World Bank.
  2. William Easterly, 1992. "How Much does Policy Affect Growth?," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 29(87), pages 295-306.
  3. Eduardo Fernández-Arias & Peter Montiel, 2002. "Reform and Growth in Latin America: All Pain, No Gain?," Department of Economics Working Papers 2001-06, Department of Economics, Williams College.
  4. Dong He & Pardy, Robert, 1993. "Stock market development and financial deepening in developing countries : some correlation patterns," Policy Research Working Paper Series 1084, The World Bank.
  5. Helmut Reisen, 1997. "Liberalising Foreign Investments by Pension Funds: Positive and Normative Aspects," OECD Development Centre Working Papers 120, OECD Publishing.
  6. José De Gregorio & Pablo Guidotti, 1992. "Notas sobre la Intermediación Financiera y Crecimiento Económico," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 29(87), pages 329-348.
  7. Loayza, Norman & Palacios, Luisa, 1997. "Economic reform and progress in Latin America and the Caribbean," Policy Research Working Paper Series 1829, The World Bank.
  8. Eduardo Fernández-Arias & Peter Montiel, 1997. "Reforma y crecimiento en América Latina: ¿Puro dolor y nada que ganar?," Research Department Publications 4079, Inter-American Development Bank, Research Department.
  9. Sanghamitra Bandyopadhyay, 2006. "Rich States, Poor States: Convergence and Polarisation in India," Economics Series Working Papers 266, University of Oxford, Department of Economics.
  10. Amarendra Sahoo & Khundrakpam J K, 2007. "A Review of Trends in Banking Indicators in North Eastern Region of India," Working Papers id:1253, eSocialSciences.
  11. Cull, Robert J., 1997. "Financial sector adjustment lending : a mid-course analysis," Policy Research Working Paper Series 1804, The World Bank.
  12. Beckmann, Rainer & Eppendorfer, Carsten & Neimke, Markus, 2002. "Deepening European Financial Integration: Theoretical Considerations and Empirical Evaluation of Growth and Employment Benefits," MPRA Paper 5272, University Library of Munich, Germany.
  13. Abid, Ilyes & Kaabia, Olfa & Guesmi, Khaled, 2014. "Stock market integration and risk premium: Empirical evidence for emerging economies of South Asia," Economic Modelling, Elsevier, vol. 37(C), pages 408-416.
  14. A. Galetovic, 1996. "Finance and growth: a synthesis and interpretation of the evidence," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 49(196), pages 59-82.
  15. Pardy, Robert, 1992. "Institutional reform in emerging securities markets," Policy Research Working Paper Series 907, The World Bank.
  16. Alexander Galetovic, 1994. "Finance and growth: a synthesis and interpretation of the evidence," International Finance Discussion Papers 477, Board of Governors of the Federal Reserve System (U.S.).
  17. Mechthild Schrooten, 2001. "Some Remarks on Japanese Finance, Growth and International Integration," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 70(4), pages 515-526.
  18. A. Galetovic, 1996. "Finance and growth: a synthesis and interpretation of the evidence," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 49(196), pages 59-82.

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