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Does Financial Structure Matter?

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Author Info
Philip Arestis (The Levy Economics Institute)
Ambika D. Luintel (London South Bank University)
Kul B. Luintel (Brunel University)

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Abstract

We address the issue of whether financial structure influences economic growth. Three competing views of financial structure exist in the literature: the bank-based, the market-based and the financial services view. Recent empirical studies examine their relevance by utilizing panel and cross-section approaches. This paper, for the first time ever, utilizes time series data and methods, along with the Dynamic Heterogeneous Panel approach, on developing countries. We find significant cross-country heterogeneity in the dynamics of financial structure and economic growth, and conclude that it is invalid to pool data across our sample countries. We find significant effects of financial structure on real per capita output, which is in sharp contrast to some recent findings. Panel estimates, in most cases, do not correspond to country-specific estimates, and hence may proffer incorrect inferences for several countries of the panel.

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Paper provided by EconWPA in its series Finance with number 0401006.

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Length: 30 pages
Date of creation: 26 Jan 2004
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Handle: RePEc:wpa:wuwpfi:0401006

Note: Type of Document - pdf; pages: 30
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Related research
Keywords: Financial Structure Economic Development Vector Error- Correction Model Dynamic Heterogeneous Panels

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Find related papers by JEL classification:
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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Cited by:
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  1. Andrea Vaona & Roberto Patuelli, 2008. "New empirical evidence on local financial development and growth," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 0805, Biblioteca universitaria di Lugano (University Library of Lugano). [Downloadable!]
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