How financial markets affect long run growth : a cross country study
Empirical studies on new growth theory have tended to ignore financial policy's role in development. The author provides evidence that the initial level of financial development is positively associated with a country's later GDP growth rate, after controlling for the effect of the starting value of human capital and the investment rate. A country that starts with a more developed financial system tends to grow faster because it can make more efficient use of resources. It can do so through several channels, including better evaluation and monitoring of firms, lower transaction costs for financial intermediation, and externalities generated from information collected and processed in financial markets. Policy reform that fosters financial development also has a significant positive effect on the growth rate of real GDP. The empirical evidence presented for 50 developing countries tends to reinforce a classical theme of development economics: the importance of human capital and financial markets.
|Date of creation:||31 Jan 1992|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
- Jung, Woo S, 1986. "Financial Development and Economic Growth: International Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 34(2), pages 333-346, January.
- Williamson, Stephen D., 1986.
"Costly monitoring, financial intermediation, and equilibrium credit rationing,"
Journal of Monetary Economics,
Elsevier, vol. 18(2), pages 159-179, September.
- Stephen D. Williamson, 1984. "Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing," Working Papers 583, Queen's University, Department of Economics.
- Townsend, Robert M, 1983. "Financial Structure and Economic Activity," American Economic Review, American Economic Association, vol. 73(5), pages 895-911, December.
- Stern, Nicholas, 1991. "Public policy and the economics of development," European Economic Review, Elsevier, vol. 35(2-3), pages 241-271, April.
- Edwards, Sebastian, 1992.
"Trade orientation, distortions and growth in developing countries,"
Journal of Development Economics,
Elsevier, vol. 39(1), pages 31-57, July.
- Sebastian Edwards, 1991. "Trade Orientation, Distortions and Growth in Developing Countries," NBER Working Papers 3716, National Bureau of Economic Research, Inc.
- Joseph E. Stiglitz, 1991. "Government, Financial Markets, and Economic Development," NBER Working Papers 3669, National Bureau of Economic Research, Inc.
- Baumol, William J, 1986.
"Productivity Growth, Convergence, and Welfare: What the Long-run Data Show,"
American Economic Review,
American Economic Association, vol. 76(5), pages 1072-1085, December.
- Baumol, William J., 1985. "Productivity Growth, Convergence and Welfare: What the Long Run Data Show," Working Papers 85-27, C.V. Starr Center for Applied Economics, New York University.
- Stewart, Frances & Ghani, Ejaz, 1991. "How significant are externalities for development?," World Development, Elsevier, vol. 19(6), pages 569-594, June.
- Easterly, William R. & Wetzel, Deborah L., 1989. "Policy determinants of growth : survey of theory and evidence," Policy Research Working Paper Series 343, The World Bank.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:843. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.