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Financial Markets Banks and Growth: Disentangling the Links

  • Alessandro Giovannini
  • Maurizio Iacopetta

    (Observatoire français des conjonctures économiques)

  • Raoul Minetti

    (Michigan State University)

The paper reviews the state of the economic literature on the link between financial development and growth. We first examine the issue of measurement of financial development and the debate on the direction of causality between finance and growth. Next, we extensively discuss the various channels through which the financial sector can affect growth, including the increase in the efficiency of capital allocation, the reduction in information costs, the improvement of risk management, and the support of innovation. The analysis is conducted referring both to the theoretical literature and to the most recent empirical findings. We conclude by drawing lessons for the current debate on the reform of the financial sector in the aftermath of the Great Recession.

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Paper provided by Sciences Po in its series Sciences Po publications with number 2013-13.

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Date of creation: Nov 2013
Handle: RePEc:spo:wpmain:info:hdl:2441/6o65lgig8d0qcro9p14jk1001
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