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Does Financial Development 'Lead' Economic Growth?

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  • Jordan Shan
  • Alan Morris

Abstract

We use the Toda & Yamamoto (1995) causality testing procedure to investigate the relationship, if any, between financial development and economic growth.We use quarterly data from 19 OECD countries and China, and use total credit and interest spread as indicators of financial development. We also consider the impact of financial development on investment and productivity. We find meagre evidence that financial development 'leads' economic growth, either directly or indirectly. This casts further doubt on claims that financial development is a necessary and perhaps sufficient precursor to economic growth.

Suggested Citation

  • Jordan Shan & Alan Morris, 2002. "Does Financial Development 'Lead' Economic Growth?," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(2), pages 153-168.
    • Handle: RePEc:taf:irapec:v:16:y:2002:i:2:p:153-168
    DOI: 10.1080/02692170110118885
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    References listed on IDEAS

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