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

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Abstract

This paper 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.

Suggested Citation

  • Neven Valev & Felix Rioja, 2002. "Finance and the Sources of Growth at Various Stages of Economic Development," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0217, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  • Handle: RePEc:ays:ispwps:paper0217
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    Keywords

    economic development;

    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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