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A Review Of Finance–Growth Nexus Theories: How Does Development Finance Fits In?

Author

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  • MARWA Nyankomo

    (University of Stellenbosch Business School, South Africa)

  • ZHANJE Stephen

    (University of Limpopo, South Africa)

Abstract

The finance growth-nexus debates have been contentious over the past three decades both empirically and theoretically. To contribute to this debate, the current paper presents a concise review of finance–growths nexus theoretical development and the current debate around growth-finance nexus theories. Then, it extends the current theoretical debate to include development finance within the broader scheme of finance-growth discourse. The key emerging trend is that, most of the contemporary theories trying to explain finance growth nexus have been exclusively focusing on the standard finance in general. Little attention has been devoted to understand the role of development finance on finance–growth nexus. It concludes that, for a more comprehensive understanding of the finance growth nexus, the role of development finance should be integrated in theory of finance–growth nexus. The paper demonstrates that conventional model of finance–growth nexus is more likely to underestimate the magnitude of the impact of finance on economic growth especially for less developed countries. The paper suggests that, a model which breakdown the finance into standard finance subgroup and development finance subgroup may provide more accurate and insightful findings.

Suggested Citation

  • MARWA Nyankomo & ZHANJE Stephen, 2015. "A Review Of Finance–Growth Nexus Theories: How Does Development Finance Fits In?," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 10(1), pages 83-91, April.
  • Handle: RePEc:blg:journl:v:10:y:2015:i:1:p:83-91
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    File URL: http://eccsf.ulbsibiu.ro/RePEc/blg/journl/1017marwa&zhanje.pdf
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    References listed on IDEAS

    as
    1. Arestis, Philip & Demetriades, Panicos O, 1997. "Financial Development and Economic Growth: Assessing the Evidence," Economic Journal, Royal Economic Society, vol. 107(442), pages 783-799, May.
    2. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    3. Jean Arcand & Enrico Berkes & Ugo Panizza, 2015. "Too much finance?," Journal of Economic Growth, Springer, vol. 20(2), pages 105-148, June.
    4. Michael Thiel, 2001. "Finance and economic growth - a review of theory and the available evidence," European Economy - Economic Papers 2008 - 2015 158, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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