the finance growth link in latin america this paper analyzes the relationship between financial development and economic growth in latin america with a granger causality test and impulse response functions in a panel vector autoregression var model with annual observations from a sample of 18 countries from 1962 to 2005 it is shown that while economic growth causes financial development financial development does not cause economic growth this finding is robust to different model specifications and different financial indicators interestingly when the sample is divided according to different income levels and institutional quality there is two way causality between financial development and economic growth only for the middle income group and for countries with stronger rule of law and creditor rights the impulse response functions show that a shock to financial development has a positive impact on economic growth only for these subsamples but the net effect of financial development on growth is relatively small during the 1980s most latin american countries suffered from distorted financial systems in this decade the government kept interest rate controls allocated credit arbitrarily and deterred the expansion of security markets and the creation of new financial institutions edwards 1999 nonetheless there has been a significant improvement on the levels of financial development in the region while credit to the private sector as a share of gross domestic product gdp in the latin american region was on average 12 in the 1960s it grew to an average of 29 in the early 2000s 1 even though latin american countries experienced significant financial reforms in the 1990s that promoted financial deregulation and the growth of the stock market financial development indicators show that the region is financially underdeveloped when compared to other emerging regions 2 therefore lack of financial depth may be a barrier to better economic performance in latin america the link between financial development and economic growth is complex because the direction of causation between the two variables may run both ways theoretical and empirical analyses support causality running from financial development to economic growth supply leading hypothesis but there is also evidence that economic growth causes financial

finance and the sources of growth at various stages of economic development this article studies the effects of financial development on the sources of growth in different groups of countries recent theoretical work shows that financial development may affect productivity and capital accumulation in different ways in industrial versus developing countries this hypothesis is tested with panel data from 74 countries using gmm dynamic panel techniques results are consistent with the hypothesis finance has a strong positive influence on productivity growth primarily in more developed economies in less developed economies the effect of finance on output growth occurs primarily through capital accumulation jel o4 g1

intra industry trade between the industrial countries and the developing world abstract intra industry trade in manufactures between the industrial countries and the developing world is far from negligible and it cannot be explained away by the level of aggregation used our results indicate a complementarity between the heckscher ohlin family of explanations of trade between countries and the observed intra industry trade in manufactures between the industrial countries and the developing world further both natural and artificial barriers to trade seems to encourage such intra industry trade but this should provide little consolation to protection lobbies as the cost reductions implied by the intra industry trade adjustments will have high if they were to compensate for the welfare losses resulting from barriers to trade

local institutions audit quality and corporate scandals of us listed foreign firms using data on shareholder initiated class action lawsuits in the us i investigate the corporate scandals of us listed foreign firms the shareholders of scandal firms suffer considerable loss in both the short term and the long term i document that firms domiciled in countries with weak institutions are more likely to be embroiled in corporate scandals but such a relation can be moderated by the presence of big 4 auditors investors automatically adjust for undiscovered misconduct when valuing the stocks of non scandal firms i e the spillover effect investors rely on the audit quality to form their expectations about the severity of undiscovered misconduct and thus impose less negative spillovers on firms with big 4 auditors especially when the firms are from countries with weak institutions taken together my results suggest that listing on us exchanges does not fully compensate for weak local institutions voluntarily bonding to a more stringent audit process has an incremental effect on protecting shareholder interests and enhances the confidence of investors in firms financial integrity

financial development and financing constraints international evidence from the structural investment model this article provides evidence that financial development impacts growth by reducing financing constraints that would otherwise distort efficient allocation of investment the financing constraints are inferred from the investment euler equation by assuming that the firm s stochastic discount factor is a function of the firm s financial position specifically the stock of liquid assets the magnitude of the changes in the cost of capital is twice as large in a country with a low level of financial development as in a country with an average level of financial development the size effect business cycles and legal environment effects are also considered copyright 2003 oxford university press

tests and confidence intervals for a class of scientometric technological and economic specialization ratios in economic scientometric and innovation research often so called specialization indices are used these indices measure comparative strengths or weaknesses as well as specialization profiles of the observation units with respect to certain criteria such as patenting and publication or trade activities they allow question like is germany specialized in the export of motor vehicles or is the uk specialized in biotech patents unfortunately little is known about their statistical properties which makes valid inferencing difficult in this article we prove asymptotic normality for a certain class of scientometric technological and some economic though nonmonetary specialization indices we provide asymptotic confidence intervals and demonstrate in an example how to obtain statistically sound results we will also address the problem of normalization of these indicators all procedures proposed are provided in an add on package for r statistical environment

same financial development yet different economic growth why we re study the relationship between financial development and real gdp per capita growth in 48 countries what we find is an interesting evidence that only stock market development has positive effects on growth and that banking development has an unfavorable if not negative effect on growth we examine whether or not these impacts are a product of various financial and economic conditional variables our conditional variables consist of financial liberalization two sets of country development dummies crises in banking and currency dummies the creditor protection index as well as the anti director and corruption indices our results clearly show that the conditional variables of financial liberalization high income level and good shareholder protection mitigate the negative impacts of banking development on growth in contrast the conditional variables of middle income level regional latin american sub saharan african and east asian dummies banking and currency crises good creditor protection and higher corruption strengthen the negative impacts of banking development on growth next the conditional variables of middle income level latin american sub saharan african and east asian dummies strengthen the positive impacts of stock market development on growth whereas the conditional variables of financial liberalization mitigate the positive impacts of stock market development on growth last we find that the relationship between growth and bank development is better described as a weak inverse ushape this inverse u shape becomes stronger when additional stock market variables are squared thus financial development and growth may in fact be in a nonlinear form

financial development and economic growth additional evidence this note suggests that contrary to the conclusions reached in several recent studies the empirical evidence does not support the view that financial development promotes economic growth it is first noted that the predominant pattern in the data for 95 individual countries is that of a negligible or weakly negative covariation between financial development and growth of real gdp per capita second the individual country correlational picture is a sharp contrast to the correlations based on crosscountry data that have been used in most research on the subject third individual country estimates of a basic multiple regression growth model also do not indicate a positive association between financial development and growth fourth in cross country data and models of the kind that have been used in most studies when the regression structure is permitted to vary across three subgroups a huge parametric heterogeneity is observed and the overall indication is that of a negligible or negative association

financial development financial fragility and growth the authors study the apparent contradiction between two strands of the literature on the effects of financial intermediation on economic activity on the one hand the empirical growth literature finds a positive effect of financial depth as measured by for instance private domestic credit and liquid liabilities for example levine loayza and beck 2000 on the other hand the banking and currency crisis literature finds that monetary aggregates such as domestic credit are among the best predictors of crises and their related economic downturns for example kaminski and reinhart 1999 the authors account for these contrasting effects based on the distinction between the short and long run impacts of financial intermediation working with a panel of cross country and time series observations they estimate an encompassing model of short and long run effects using the pooled mean group estimator developed by pesaran shin and smith 1999 their conclusion from this analysis is that a positive long run relationship between financial intermediation and output growth coexists with a mostly negative short run relationship the authors further develop an explanation for these contrasting effects by relating them to recent theoretical models by linking the estimated short run effects to measures of financial fragility namely banking crises and financial volatility and by jointly analyzing the effects of financial depth and fragility in classic panel growth regressions

financial development and economic growth international evidence the importance of the relationship between financial development and economic growth has been well recognized and emphasized in the field of economic development 1 although recent writings on this subject seem to accept the hypothesis that financial development is crucial for successful economic growth 2 patrick asked the critical question which sector financial or real leads in the dynamic process of economic development patrick identified two possible patterns in the causal relationship between financial development and economic growth in the first growth induces an expansion of the financial system 3 according to this view called demand following the lack of financial growth is a manifestation of the lack of demand for financial services as the real side of the economy develops its demands for various new financial services materialize and these are met rather passively from the financial side in the second pattern the expansion of the financial system precedes the demand for its services channeling scarce resources from small savers to large investors according to relative rates of return the financial sector precedes and induces real growth the deliberate establishment and promotion of financial institutions in many less developed countries ldcs might reflect this belief in the supply leading relationship between the two developments a natural question then concerns the direction of causality between financial development and economic growth patrick asserted that the direction of causality changes over the course of development in his view financial development is able to induce real innovation type investment before sustained modern economic growth gets under way and as the process of real growth occurs the supply leading impetus gradually becomes less important and the demand following financial response

the direction of causality between financial development and economic growth abstract this paper employs the geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth the paper finds that 1 financial development generally leads to economic growth 2 the granger causality from financial development to economic growth and the granger causality from economic growth to financial development coexist 3 financial deepening contributes more to the causal relationships in the developing countries than in the industrial countries 4 the longer the sampling interval the larger the effect of financial development on economic growth 5 financial deepening propels economic growth through both a more rapid capital accumulation and productivity growth with the latter channel being the strongest

does financial development lead economic growth a vector auto regression appraisal using a vector autoregression var approach several hypotheses are re examined suggested by the literature concerning the relationship between financial development and economic growth investment and productivity the models use quarterly time series data from ten oecd countries and china innovation accounting or variance decomposition and impulse response function analysis is applied to examine interrelationships between variables in the var system and therefore differs from the more usual granger causality approach in particular it examines the relationship between financial development proxied by total credit at best weak support is found for the hypothesis that financial development leads economic growth

financial development investment and economic growth zhenhui xu in this article i use a multivari ate vector autoregressive var approach to examine the effects of permanent financial development on domestic investment and output in 41 countries between 1960 and 1993 the var approach permits the identification of the long term cumulative effects of financial development on the domestic variables by allowing for dynamic interactions among these variables the results reject the hypothesis that financial development simply follows economic growth and has very little effect on it instead there is strong evidence that financial development is important to growth and that investment is an important channel through which financial development affects growth jel e22 e44 e47 016 057 keywords economic growth financial development investment vector auto regression impulse response i introduction interest in the relationship between financial development and economic growth dates back to early this century and has been growing since the 1980s 1 in the literature three views have emerged concerning the potential importance of finance in economic growth the first sees finance as a critical element of growth schumpeter 19113 goldsmith 19691 mckinnon 19733 shaw 1973 fry 1978 1988 bencivenga and smith 1991 king and levine 1993a 1993b in this view services provided by the financial system are essential for growth and a repressed financial system characterized by price distortion undersaving negative or unstable returns on savings and investment and inefficient allocation of savings among competing users impedes growth 2 as the financial system develops households substitute out of unproductive tangible assets raising the total real supply of credit the quantity and quality of investment and thus the rate of economic growth in addition financial development can pro mote technological innovations and productivity growth king and levine 1993a the second view regards finance as a relatively unimportant factor in growth essentially as the handmaiden to industry and commerce robinson 19521 lucas 1988 stern 1989 in this perspective the lack of financial development is simply a manifestation of the lack of demand for financial services as the real sectors of the economy grow the demand for various financial services rises and will thus be met by the financial sector based on this view financial development simply follows economic growth and has very little effect on it like the first one the third view ascribes effects to finance but focuses on its potential negative impacts on growth van wijnbergen 1983 buffie 1984 economists holding this view contend that financial development can hinder growth by reducing available credit to domestic firms this situation arises from the presence of informal curb markets as the formal financial system develops households are seen to substitute out of curb market loans thus reducing the total real supply of domestic credit the reduction in the supply of credit can lead to a credit crunch thereby lowering investment and slowing production and growth further such a credit crunch can retard economic growth beyond the short term by lowering the steady state capital stock wijnbergen 1983 from these divergent views three testable hypotheses emerge with sharply different policy implications the first view suggests that government policies should be directed toward improving the financial system since financial development has important causal effects on growth the second view implies that government policies toward improving the financial system will have little effect on growth since financial development results from growth and has little impact on it based on the third view there is a potential danger of financial development under certain institutional arrangements government efforts toward financial development can cost an economy its long term growth by reducing total real supply of domestic credit

trade barriers multinational involvement and intra industry trade panel data evidence from india the article analyses the effects of trade barriers and multinationals on the intensity of intra industry trade iit in a panel of indian manufacturing industries from 1988 to 1999 we find that the intensity of iit increases with the reduction of trade barriers this is expected as greater competition from imports leads individual plants in the domestic industry to specialize in the manufacturing of unique varieties the analysis suggests that horizontal market seeking multinational activities in the domestic industries exert a negative influence on iit this is consistent with the view that horizontal multinationals displace exports to the host country at the same time our results indicate that iit will be stimulated to the extent that the entry of multinationals induces intra industry specialization we also analyse the role of product differentiation and plant level scale economies in determining iit

financial development and economic growth abstract this paper examines the empirical relationship between long run growth and financial development proxied by the ratio between bank credit to the private sector and gdp we find that this proxy is positively correlated with growth in a large cross country sample but its impact changes across countries and is negative in a panel data for latin america we argue that the latter findings is the result of financial liberalization in a poor regulatory environment our findings also show that the main channel of transmission from financial development to growth is the efficiency rather than the volume of investment

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

creditor protection and credit response to shocks this article studies the relationship between creditor protection and credit responses to macroeconomic shocks using a data set on legal determinants of finance in a panel of data on aggregate credit growth for 79 countries during 1990 2004 it is shown that credit is more responsive to external shocks in countries with weak legal creditor protection and weak enforcement the results are statistically and economically significant and robust to alternative measures of creditor protection to the inclusion of variables that reflect different stages of economic development to the restriction of the sample to only developing economies to the controls for systemic crises to alternative shock measures and to vector autoregressive specifications

a quantitative reassessment of the finance growth nexus evidence from a multivariate var abstract the long run relationship between financial development and economic growth is examined in a multivariate vector autoregression var framework using 10 sample countries difficulties surrounding the cross country regressions and bivariate time series studies are outlined the long run financial development and output relationships are identified in a cointegrating framework through tests of over identifying restrictions we find bi directional causality between financial development and economic growth in all the sample countries conclusions that stand distinct from those in the existing empirical literature we attribute our findings to i analysis of a higher dimensional system ii a new method of identifying the long run economic relationships and iii a new approach to long run causality testing

intra industry trade in intermediate products pollution and internationally increasing returns this paper examines the relationship between intra industry trade in intermediate products pollution and increasing returns we develop a two country model in which production occurs in two stages final and intermediate good production intermediate goods are produced under monopolistic competition and final good production exhibits increasing returns with respect to the number of varieties of intermediates pollution occurs in the production of the final good when polluting intermediates are used we analyze the effects of international trade in intermediate products on pollution output and welfare under an endogenous tax scenario and with two types of pollution functions the results show that because of increasing returns international trade either leads to lower total pollution in each country or lower pollution per unit of output in at least one country in addition intra industry trade causes countries to import the environmental quality of their trading partners

does one size fit all a reexamination of the finance and growth relationship abstract recent research has found a strong positive effect of a country s financial development on economic growth we propose that this relationship may vary according to the level of financial development divided in three regions in the low region countries with very low levels of financial development additional improvements in financial markets have an uncertain effect on growth in the intermediate region financial development has a large positive effect on growth finally in the high region the effect is positive but smaller we examine a panel of 74 countries using generalized method of moments gmm dynamic panel techniques and find support for the different regions

is trade in permits good for the environment we analyze the impact of trade in emission permits on environmental policy when countries trade a differentiated good pollution is always higher with tradable permits as compared to the case where permits are not internationally tradable if pollution is a pure global public bad i e the marginal damage from transboundary pollution is the same as that from local pollution the permit price under trade equals the domestic marginal damage from own emissions if pollution is not a pure global public bad i e the marginal damage from transboundary pollution is less than that from local pollution trade results in a permit price lower than the domestic marginal damage from own emissions pollution is higher under trade relative to autarky regardless of the nature of transboundary pollution the permit price equivalent pollution tax is lower and pollution is higher with internationally tradable permits than with nontradable permits

the effect of financial development on convergence theory and evidence we introduce imperfect creditor protection in a multicountry schumpeterian growth model the theory predicts that any country with more than some critical level of financial development will converge to the growth rate of the world technology frontier and that all other countries will have a strictly lower long run growth rate we present evidence supporting these and other implications in the form of a cross country growth regression with a significant and sizable negative coefficient on initial per capita gdp relative to the united states interacted with financial intermediation in addition we find that other variables representing schooling geography health policy politics and institutions do not affect the significance of the interaction between financial intermediation and initial per capita gdp and do not show any independent effect on convergence in the regressions our findings are robust to removal of outliers and to alternative conditioning sets estimation procedures and measures of financial development

finance and the sources of growth 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

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research