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Finance and the Sources of Growth at Various Stages of Economic Development

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  • Felix Rioja
  • Neven Valev

Abstract

This article studies the effects of financial development on the sources of growth in different groups of countries. Recent theoretical work shows that financial development may affect productivity and capital accumulation in different ways in industrial versus developing countries. This hypothesis is tested with panel data from 74 countries using GMM dynamic panel techniques. Results are consistent with the hypothesis: finance has a strong positive influence on productivity growth primarily in more developed economies. In less developed economies, the effect of finance on output growth occurs primarily through capital accumulation. (JEL O4, G1) Copyright 2004, Oxford University Press.

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  • Felix Rioja & Neven Valev, 2004. "Finance and the Sources of Growth at Various Stages of Economic Development," Economic Inquiry, Western Economic Association International, vol. 42(1), pages 127-140, January.
  • Handle: RePEc:oup:ecinqu:v:42:y:2004:i:1:p:127-140
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    More about this item

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • G1 - Financial Economics - - General Financial Markets

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