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Financial Development and Economic Growth in Corporatist and Liberal Market Economies

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  • MICHAEL GRAFF

Abstract

The paper addresses the significance of financial development as a possible determinant of economic growth. Economists and policymakers in transition economies and emerging markets are certainly aware of the key role that, in a market economy, the financial system is supposed to play in the process of allocating scarce resources to their final uses. However, to fulfill this function, the financial sector itself is using up resources, and it is not obvious, whether or under which conditions the overall balance is a favorable one. An empirical analysis of these questions is based on a panel data set covering ninety-three countries from 1970-90. According to this data, financial activity has generally supported economic growth. To clarify whether socioeconomic characteristics modify the structure of the finance-growth nexus, the countries are classified according to their degree of corporatism. It is shown that the partial correlation between (lagged) proxies for financial development as well as its interaction terms and growth are significantly higher in the more corporatist subgroup of countries. When designing appropriate policies for the setup and reform of a financial system in transition economies and emerging markets, it is therefore crucial to consider the embeddedness of economic institutions into their broader social, cultural, and historical surroundings.

Suggested Citation

  • Michael Graff, 2003. "Financial Development and Economic Growth in Corporatist and Liberal Market Economies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 39(2), pages 47-69, March.
    • Handle: RePEc:mes:emfitr:v:39:y:2003:i:2:p:47-69
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    Cited by:

    1. repec:eee:quaeco:v:66:y:2017:i:c:p:136-148 is not listed on IDEAS
    2. Tzu-Yun Tseng, 2012. "Will Both Direct Financial Development and Indirect Financial Development Mitigate Investment Sensitivity to Cash Flow? The Experience of Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 139-152, July.
    3. Ahmad Zubaidi Baharumshah & Suleiman W. Almasaied, 2009. "Foreign Direct Investment and Economic Growth in Malaysia: Interactions with Human Capital and Financial Deepening," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 45(1), pages 90-102, January.
    4. Gunther Capelle-Blancard & Claire Labonne, 2016. "More Bankers, More Growth? Evidence from OECD Countries," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 45(1), pages 37-51, February.
    5. Ahmad Zubaidi Baharumshah & Suleiman W. Almasaied, 2009. "Foreign Direct Investment and Economic Growth in Malaysia: Interactions with Human Capital and Financial Deepening," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 45(1), pages 90-102, January.
    6. Pradhan, Rudra P. & Arvin, Mak B. & Norman, Neville R., 2015. "Insurance development and the finance-growth nexus: Evidence from 34 OECD countries," Journal of Multinational Financial Management, Elsevier, vol. 31(C), pages 1-22.
    7. Dayong Zhang & Yu Wu, 2012. "Household Savings, the Stock Market, and Economic Growth in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(2), pages 44-58, March.
    8. Eduardo Court & Emre Ozsoz & Erick W. Rengifo, 2012. "The Impact of Deposit Dollarization on Financial Deepening," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(6), pages 39-52, November.
    9. Malebogo Bakwena & Philip Bodman & Sandy Suardi, "undated". "Making Abundant Natural Resources Work for Developing Economies: The Role of Financial Institutions," MRG Discussion Paper Series 2108, School of Economics, University of Queensland, Australia.
    10. Petra Valickova & Tomas Havranek & Roman Horvath, 2015. "Financial Development And Economic Growth: A Meta-Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 29(3), pages 506-526, July.
    11. Rudra P. Pradhan & Mak B. Arvin & Sara E. Bennett & Mahendhiran Nair & John H. Hall, 2016. "Bond Market Development, Economic Growth and Other Macroeconomic Determinants: Panel VAR Evidence," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 23(2), pages 175-201, June.
    12. Pradhan, Rudra P. & Arvin, Mak B. & Hall, John H. & Bahmani, Sahar, 2014. "Causal nexus between economic growth, banking sector development, stock market development, and other macroeconomic variables: The case of ASEAN countries," Review of Financial Economics, Elsevier, vol. 23(4), pages 155-173.
    13. Orhan Akisik, 2013. "Accounting Regulation, Financial Development, and Economic Growth," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(1), pages 33-67, January.
    14. Orhan Akisik, 2013. "Accounting Regulation, Financial Development, and Economic Growth," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(1), pages 33-67, January.
    15. Peter Lawrence, 2006. "Finance and development: why should causation matter?," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(7), pages 997-1016.
    16. Tzu-Yun Tseng, 2012. "Will Both Direct Financial Development and Indirect Financial Development Mitigate Investment Sensitivity to Cash Flow? The Experience of Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 139-152, July.
    17. Malebogo Bakwena & Philip Bodman, "undated". "The Role of Financial Development in Natural Resource Abundant Economies: Does the Nature of the Resource Matter?," MRG Discussion Paper Series 2208, School of Economics, University of Queensland, Australia.
    18. Eduardo Court & Emre Ozsoz & Erick W. Rengifo, 2012. "The Impact of Deposit Dollarization on Financial Deepening," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(6), pages 39-52, November.
    19. Dayong Zhang & Yu Wu, 2012. "Household Savings, the Stock Market, and Economic Growth in China," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(2), pages 44-58, March.
    20. Pradhan, Rudra P. & Arvin, Mak B. & Ghoshray, Atanu, 2015. "The dynamics of economic growth, oil prices, stock market depth, and other macroeconomic variables: Evidence from the G-20 countries," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 84-95.

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