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Stock markets, banks and economic growth

  • Ross Levine
  • Sara Zervos

Do well-functioning stock markets and banks promote long-run economic growth? This paper shows that stock market liquidity and banking development both positively predict growth, capital accumulation, and productivity improvements when entered together in regressions, even after controlling for economic and political factors. The results are consistent with the views that financial markets provide important services for growth and that stock markets provide different services from banks. The paper also finds that stock market size, volatility, and international integration are not robustly linked with growth and that none of the financial indicators is closely associated with private saving rates. Copyright 1998 by American Economic Association.

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Paper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series CERF Discussion Paper Series with number 95-11.

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Handle: RePEc:bru:brucer:95-11
Contact details of provider: Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK

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