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Financial Development and Economic Growth: Known Knowns, Known Unknowns, and Unknown Unknowns

This paper summarizes the main findings of the literature on the relationship between financial and economic development (the known knowns), points to directions for future research (the known unknowns), and then speculates on the third Rumsfeldian category. The known knowns section organizes the empirical literature on finance and growth into three strands: (i) the traditional literature which established the link between finance and growth; (ii) the new literature which qualified some of the results of the traditional literature; and (iii) the new-new literature which focuses on alternative measures of financial development and on the dark side of finance. The known unknowns section focuses on causality, on the channels through which finance affects growth, and on the dark side of finance. The unknown unknowns section discusses a topic on which we may know less than what we think we know.

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Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 14-2013.

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Length: 34 pages
Date of creation: 02 Dec 2013
Date of revision:
Handle: RePEc:gii:giihei:heidwp14-2013
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  39. repec:dgr:kubcen:2012049 is not listed on IDEAS
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  41. Rui Albuquerque & Hugo A. Hopenhayn, 2004. "Optimal Lending Contracts and Firm Dynamics," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 285-315.
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