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

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  • Hasan,Iftekhar
  • Horvath,Roman
  • Mares,Jan

Abstract

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.

Suggested Citation

  • Hasan,Iftekhar & Horvath,Roman & Mares,Jan, 2016. "What type of finance matters for growth ? Bayesian model averaging evidence," Policy Research Working Paper Series 7645, The World Bank.
  • Handle: RePEc:wbk:wbrwps:7645
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    Cited by:

    1. Ramana Nanda & William R. Kerr, 2015. "Financing Innovation," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 445-462, December.
    2. Carlos Arango & Yassine Bouhdaoui & David Bounie & Martina Eschelbach & Lola Hernández, 2013. "Cash Management and Payment Choices: A Simulation Model with International Comparisons," Staff Working Papers 13-53, Bank of Canada.
    3. Daron Acemoglu & Ufuk Akcigit & Douglas Hanley & William Kerr, 2016. "Transition to Clean Technology," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 52-104.
    4. Eerola, Essi & Saarimaa, Tuukka, 2015. "Who benefits from public housing?," Research Discussion Papers 30/2015, Bank of Finland.
    5. Mariotto, Carlotta & Verdier, Marianne, 2015. "Innovation and competition in Internet and mobile banking: an industrial organization perspective," Research Discussion Papers 23/2015, Bank of Finland.
    6. Horvath, Roman & Horvatova, Eva & Siranova, Maria, 2017. "Financial development, rule of law and wealth inequality : Bayesian model averaging evidence," BOFIT Discussion Papers 12/2017, Bank of Finland, Institute for Economies in Transition.
    7. Florian Léon, 2016. "Enterprise credit, household credit and growth: New evidence from 126 countries," CREA Discussion Paper Series 16-17, Center for Research in Economic Analysis, University of Luxembourg.

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    Keywords

    Financial Economics; Finance and Development;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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