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Finance and the sources of growth

  • Beck, Thorsten
  • Levine, Ross
  • Loayza, Norman

The authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources-total factor productivity growth, physical capital accumulation, and private saving. They use (1) a pure cross-country instrumental variable estimator to extract the exogenous component of banking development and (2) a new panel technique that controls for country-specific effects and endogeneity. They find that: Banks do exert a large, causal impact on total factor productivity growth, which feeds through to overall GDP (Gross Domestic Product) growth. The long-run links between banking development and both capital growth and private savings are more tenuous.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2057.

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Date of creation: 28 Feb 1999
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Handle: RePEc:wbk:wbrwps:2057
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