How financial markets affect long run growth : a cross country study
AbstractEmpirical studies on new growth theory have tended to ignore financial policy's role in development. The author provides evidence that the initial level of financial development is positively associated with a country's later GDP growth rate, after controlling for the effect of the starting value of human capital and the investment rate. A country that starts with a more developed financial system tends to grow faster because it can make more efficient use of resources. It can do so through several channels, including better evaluation and monitoring of firms, lower transaction costs for financial intermediation, and externalities generated from information collected and processed in financial markets. Policy reform that fosters financial development also has a significant positive effect on the growth rate of real GDP. The empirical evidence presented for 50 developing countries tends to reinforce a classical theme of development economics: the importance of human capital and financial markets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 843.
Date of creation: 31 Jan 1992
Date of revision:
Inequality; Economic Theory&Research; Macroeconomic Management; Achieving Shared Growth; Financial Economics;
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.:
- Townsend, Robert M, 1983. "Financial Structure and Economic Activity," American Economic Review, American Economic Association, vol. 73(5), pages 895-911, December.
- Stern, Nicholas, 1991. "Public policy and the economics of development," European Economic Review, Elsevier, vol. 35(2-3), pages 241-271, April.
- Paul M Romer, 1999.
"Endogenous Technological Change,"
Levine's Working Paper Archive
2135, David K. Levine.
- Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S71-102, October.
- Baumol, William J, 1986. "Productivity Growth, Convergence, and Welfare: What the Long-run Data Show," American Economic Review, American Economic Association, vol. 76(5), pages 1072-85, December.
- Stephen D. Williamson, 1984.
"Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing,"
583, Queen's University, Department of Economics.
- Williamson, Stephen D., 1986. "Costly monitoring, financial intermediation, and equilibrium credit rationing," Journal of Monetary Economics, Elsevier, vol. 18(2), pages 159-179, September.
- Edwards, Sebastian, 1992.
"Trade orientation, distortions and growth in developing countries,"
Journal of Development Economics,
Elsevier, vol. 39(1), pages 31-57, July.
- Sebastian Edwards, 1991. "Trade Orientation, Distortions and Growth in Developing Countries," NBER Working Papers 3716, National Bureau of Economic Research, Inc.
- Jung, Woo S, 1986. "Financial Development and Economic Growth: International Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 34(2), pages 333-46, January.
- Easterly, William R. & Wetzel, Deborah L., 1989. "Policy determinants of growth : survey of theory and evidence," Policy Research Working Paper Series 343, The World Bank.
- Stewart, Frances & Ghani, Ejaz, 1991. "How significant are externalities for development?," World Development, Elsevier, vol. 19(6), pages 569-594, June.
- Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
- Joseph E. Stiglitz, 1991. "Government, Financial Markets, and Economic Development," NBER Working Papers 3669, National Bureau of Economic Research, Inc.
- Levine, Ross & Zervos, Sara, 1996.
"Stock market development and long-run growth,"
Policy Research Working Paper Series
1582, The World Bank.
- Clarke, George R. G., 1992.
"More evidence on income distribution and growth,"
Policy Research Working Paper Series
1064, The World Bank.
- Glenn D. Westley & Sherrill Shaffer, 1998.
"Credit union policies and performance in Latin America,"
98-1, Federal Reserve Bank of Philadelphia.
- Westley, Glenn D. & Shaffer, Sherrill, 1999. "Credit union policies and performance in Latin America," Journal of Banking & Finance, Elsevier, vol. 23(9), pages 1303-1329, September.
- Glenn Westley & Sherrill Shaffer, 1997. "Credit Union Policies and Performances in Latin America," Research Department Publications 4086, Inter-American Development Bank, Research Department.
- Glenn D. Westley & Sherrill Shaffer, 1997. "Credit Union Policies and Performances in Latin America," IDB Publications 6430, Inter-American Development Bank.
- Ben Jelili, Riadh & Abdmoulah, Walid, 2013. "Access to Finance Thresholds and the Finance-Growth Nexus," MPRA Paper 52221, University Library of Munich, Germany, revised 2012.
- Valpy FitzGerald (QEH), . "Finance and Growth in Developing Countries: Sound Principles and Unreliable Evidence," QEH Working Papers qehwps153, Queen Elizabeth House, University of Oxford.
- TRABELSI, Mohammed, 2002. "Finance and Growth : Empirical Evidence from Developing Countries, 1960-1990," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 2002-13, Universite de Montreal, Departement de sciences economiques.
- Stolbov, Mikhail, 2012.
"The finance-growth nexus revisited: From origins to a modern theoretical landscape,"
Economics Discussion Papers
2012-45, Kiel Institute for the World Economy.
- Stolbov, Mikhail, 2013. "The finance-growth nexus revisited: From origins to a modern theoretical landscape," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 7(2), pages 1-22.
- Byamugisha, Frank F.K., 1999. "How land registration affects financial development and economic growth in Thailand," Policy Research Working Paper Series 2241, The World Bank.
- Glenn Westley & Sherrill Shaffer, 1997. "Políticas de las asociaciones de crédito y el desempeño en América Latina," Research Department Publications 4087, Inter-American Development Bank, Research Department.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.