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Reassessing the law, finance, and growth nexus after the recent Great recession

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  • Morganti, Patrizio
  • Garofalo, Giuseppe

Abstract

The paper provides a reassessment of the relationship between financial structure, financial development, and economic growth conducting cross-section and panel econometric analyses for a sample of 62 countries over 1980–2016. In line with the traditional literature, we confirm the existence of a positive cross-country relationship between the legal system, financial development, and growth even including the experience of the recent Great recession; in addition, when jointly assessing the effect of financial structure and financial development on growth, it emerges that a more bank-oriented economy enjoys higher benefits, in terms of long-run real GDP per capita growth, than a market-oriented one. When we consider variations across countries and over time, we find that both financial structure and financial development affect growth but in an opposite way as the cross-section analysis. In particular, when we control for their joint effect on growth, we observe a positive impact of market-based financial systems, and a negative impact of the overall financial development. We also provide evidence of the existence of a positive and significant relationship between economic growth and Shadow banking during the 2002—2016 period, highlighting the crucial role played by non-bank financial intermediation in complementing traditional banking and in affecting the real economy.

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  • Morganti, Patrizio & Garofalo, Giuseppe, 2019. "Reassessing the law, finance, and growth nexus after the recent Great recession," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 229-250.
    • Handle: RePEc:eee:jeborg:v:162:y:2019:i:c:p:229-250
    DOI: 10.1016/j.jebo.2018.12.020
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    3. Muhammad Shahbaz & Mohammad Ali Aboutorabi & Farzaneh Ahmadian Yazdi, 2024. "Foreign Capital, Natural Resource Rents and Financial Development: A New Approach," Global Business Review, International Management Institute, vol. 25(2), pages 401-420, April.
    4. Guangdong Xu, 2022. "From financial structure to economic growth: Theory, evidence and challenges," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 51(1), February.
    5. Thiago Christiano Silva & Iftekhar Hasan & Benjamin Miranda Tabak, 2021. "Financing choice and local economic growth: evidence from Brazil," Journal of Economic Growth, Springer, vol. 26(3), pages 329-357, September.
    6. Patrizio Morganti, 2023. "From shadow banking to resilient market-based finance," Economics Bulletin, AccessEcon, vol. 43(2), pages 948-961.

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    More about this item

    Keywords

    Economic growth; Financial structure; Financial development; Legal institutions; Shadow banking;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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