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Re-examining the effect of financial markets and institutions on economic growth: evidence from the OECD countries

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  • Kulvinder Purewal

    (University of Leicester)

  • Hazwan Haini

    (Universiti Brunei Darussalam)

Abstract

This study re-examines the impact of financial structure on economic growth for 24 advanced OECD countries from 1980 to 2017 using dynamic panel estimators. Previous literature suggests that financial development can promote economic growth; however, recent literature has expressed skepticism toward the finance-growth nexus. This paper employs financial development indices that capture the multidimensional nature of finance, which considers the accessibility, depth and efficiency of financial markets and institutions, as well as alternative financial development measures such as financial globalisation. The results show that financial markets and financial institutions promote economic growth; however, the effect of financial markets on growth is weaker. Interestingly, the results indicate an inverse U-shaped relationship between overall financial development and economic growth. Equally important, financial globalisation is also positive and significant to growth and indicates a nonlinear relationship. However, the impact of external finance from financial globalisation is weaker compared with overall financial development. Policy implications are discussed.

Suggested Citation

  • Kulvinder Purewal & Hazwan Haini, 2022. "Re-examining the effect of financial markets and institutions on economic growth: evidence from the OECD countries," Economic Change and Restructuring, Springer, vol. 55(1), pages 311-333, February.
    • Handle: RePEc:kap:ecopln:v:55:y:2022:i:1:d:10.1007_s10644-020-09316-2
    DOI: 10.1007/s10644-020-09316-2
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    More about this item

    Keywords

    Economic growth; Financial development; Institutions; OECD;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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