Does financial activity cause economic growth?
AbstractTo clarify the causal links between financial activity and economic growth, three theoretical models are analyzed and a structural equation path models is estimated. In the modeling part, poverty traps result from large fixed costs or high proportions of real investment to run a financial sector. Human capital allocated to financial activities will improve long-run levels but may reduce growth rates in the short run. Empirically, based on data for 93 countries during the 198090 period, it is shown that during the 1980s finance was predominantly a supply-leading determinant of economic growth. Our analysis suggests, however, that this general finding cannot be confirmed for the less developed countries, thereby giving some support to the conclusions derived from the theoretical modeling. --
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Bibliographic InfoPaper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 01/01.
Date of creation: 2001
Date of revision:
financial development; economic growth; financial sector; causality;
Find related papers by JEL classification:
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O42 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
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