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A reevaluation of the impact of financial development on economic growth and its sources by regions

  • Dabos, Marcelo
  • Williams, Tomas

This work estimates the impact of Private Credit to the private sector and Liquid Liabilities (as measures of financial development) on economic growth, capital growth and productivity growth for different regions. Estimations are conducted with a panel database of 78 countries and 35 years using GMM system estimator method for dynamic panel data, correcting by Windme¼er (2005) robust errors and using fewer and relevant instruments compared to the established procedure in the literature of financial development and economic growth. We consider four geographical regions, Latin Amerca, Europe and North America, Asia and Africa. The results with this new methodology, that improves the inference over the usual one used in the literature , suggest a significant effect of financial development in economic growth for the entire panel (for the measue of Liquid Liabilities) and Latin America. We find no evidence of an effect of our financial development measures over physical capital accumulation but there is a positive effect of financial development, measure by liquidity, over total factor productivity growth. The effect of financial development over economic growth is greater in the less developed regions.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27297.

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Date of creation: 02 Dec 2009
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Handle: RePEc:pra:mprapa:27297
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  1. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934 Elsevier.
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  16. Rioja, Felix & Valev, Neven, 2004. "Does one size fit all?: a reexamination of the finance and growth relationship," Journal of Development Economics, Elsevier, vol. 74(2), pages 429-447, August.
  17. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
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