The finance-growth nexus is discussed, and a framework for empirical analysis is formulated. Based on data for 93 countries from 1960-1990, a growth equation is estimated. It includes the standard regressors as well as a new proxy for financial activity and interaction effects of the latter with catching-up, education, and physical capital accumulation. Financial activity generally has a positive impact on economic growth. Then, the countries are ranked with respect to their degree of corporatism, institutional quality, democracy, market orientation and characteristics of their financial systems. The sample is split according to these control variables. It is shown that the finance-growth nexus is indeed contingent on socio-economic factors. Specifically, the growth effect of a given level of financial activity is higher in more law enforcing and more corporatist countries, whereas the results are inconclusive with respect to democracy, market orientation and financial structure.
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Volume (Year): 11 (2005)
Issue (Month): 3 ()
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