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What type of finance matters for growth ? Bayesian model averaging evidence

Listed author(s):
  • Hasan,Iftekhar
  • Horvath,Roman
  • Mares,Jan

This paper examines the effect of finance on long-term economic growth using Bayesian model averaging to address model uncertainty in cross-country growth regressions. The literature largely focuses on financial indicators that assess the financial depth of banks and stock markets. These indicators are examined jointly with newly developed indicators that assess the stability and efficiency of financial markets. Once the finance-growth regressions are subjected to model uncertainty,the results suggest that commonly used indicators of financial development are not robustly related to long-term growth. However, the findings from the global sample indicate that one newly developed indicator -- the efficiency of financial intermediaries -- is robustly related to long-term growth.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 7645.

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Date of creation: 18 Apr 2016
Handle: RePEc:wbk:wbrwps:7645
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