financial markets and growth the last five years have witnessed a resurgence of interest in the relationship between financial intermediation and economic growth this issue had been extensively studied nearly two decades earlier by goldsmith 1969 mckinnon 1973 shaw 1973 and others who produced considerable evidence that financial development correlates with growth but their work though insightful lacked analytical foundations in traditional growth theory financial intermediation could be related to the level of the capital stock per worker or to the level of productivity but not to their respective growth rates the latter were ascribed to exogenous technical progress the recent revival of interest in the link between financial development and growth stems mainly from the insights and techniques of endogenous growth models which have shown that there can be self sustaining growth without exogenous technical progress and that the growth rate can be related to preferences technology income distribution and institutional arrangements this provides the theoretical underpinning that early contributors lacked tinancial intermediation can be shown to have not only level effects but also growth effects the resulting models have offered important insights into the effect of financial development on growth and vice versa they have also provided new impetus to empirical research on these issues this paper reviews the ground covered so far on the theoretical and empirical front and points to some still unresolved issues

financial dollarization short run determinants in transition economies this paper examines the determinants of financial dollarization in transition economies from a short run perspective using aggregate monthly data of deposit and loan dollarization we study the drivers of short term fluctuations in dollarization and test their importance at different levels of dollarization the results provide evidence that a the positive negative short run effects of depreciation monetary expansion on deposit dollarization are exacerbated in high dollarization countries b short run loan dollarization is mainly driven by banks matching of domestic loans and deposits currency matching of assets and liabilities international financial integration and institutional quality and c both types of short run dollarization are affected by interest rate differentials and deviations from desired dollarization

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

interrelationships among banks stock markets and economic growth an empirical investigation this article utilizes a simultaneous equations model to study the relationships among economic growth banking and stock market development in contrast to conventional instrumental variable approach we implement the analysis via the methodology of identification through heteroscedasticity using beck and levine 2004 dataset we find that each of the three variables interacts in important ways while both are conducive to economic growth banking development matters more for growth in low income countries and stock market development is more favourable to growth in high income or low inflation ones the data also reveal coexistence of a positive effect of banking development on stock market development and a negative effect of stock market development on banking development besides the feedback effects of growth on both banking and stock market development are found

the nexus between financial development and energy consumption in the eu a dynamic panel data analysis abstract the relationship between financial development and energy consumption has newly started to be discussed in energy economics literature this paper investigates this issue in the eu over the period 1990 2011 by using system gmm model no significant relationship is found in the eu27 the empirical results however provide strong evidence of the impact of the financial development on energy consumption in the old members greater financial development leads to an increase in energy consumption regardless of whether financial development stems from banking sector or stock market by contrast we find for the new members that the impact of financial development on energy consumption depends on how financial development is measured using bankindex the impact of financial development displays an inverted u shaped pattern while no significant relationship is detected once it is measured using stockindex

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

the financial development and growth nexus a meta analysis this is the accepted manuscript the final version is available from wiley at http onlinelibrary wiley com doi 10 1111 joes 12086 abstract

industry growth and capital allocation does having a market or bank based system matter are market based or bank based financial systems better at financing the expansion of industries that depend heavily on external finance facilitating the formation of new establishments and improving the efficiency of capital allocation across industries we find evidence for neither the market based nor the bank based hypothesis while legal system efficiency and overall financial development boost industry growth new establishment formation and efficient capital allocation having a bank based or market based system per se does not seem to matter much

does financial development affect growth this article contributes to the literature on the relationship between financial development and economic growth in three ways it utilizes recently developed techniques for generalized methods of moments gmm one step estimation with dynamic panel models it focuses exclusively on a sample of developing countries and it uses as proxies for financial development variables which capture both banking sector and stock market effects the results provide evidence based on a panel of annual data for 30 developing countries that while the stock market variables are positively and significantly related to growth their presence results in the standard banking sector variables credit to the private sector and liquid liabilities having negative effects on growth

is the relationship between financial development and economic growth monotonic evidence from a sample of middle income countries summary we revisit the relationship between financial development and economic growth in a panel of 52 middle income countries over the 1980 2008 period using pooled mean group estimations in a dynamic heterogeneous panel setting we show that there is an inverted u shaped relationship between finance and growth in the long run in the short run the relationship is insignificant this suggests that too much finance can exert a negative influence on growth in middle income countries the finding of a non monotonic effect of financial development on growth is confirmed by estimating a threshold model

are financial development and trade openness complements or substitutes this article studies the long and short run relationships between financial development and trade openness using the pooled mean group estimator of pesaran shin and smith 1999 for unbalanced panel data for 87 countries over the 1960 2005 period our empirical results indicate that long run complementarity between financial development and trade openness coexists with short run substitutionarity between the two policy variables but when splitting the data into oecd and non oecd country groups this finding can be observed only in non oecd countries for oecd countries financial development has negligible effects on trade in addition we find nonlinearity in the relationship in that long run responses of trade decrease with financial development the article further finds coexistence of negative trade effects of financial fragility and positive trade impacts of financial depth

opening a stock exchange abstract a large body of theoretical and empirical literature has established a positive relationship between levels of stock market development and economic growth however previous empirical work has been based on samples of approximately 40 countries with the most highly developed financial systems since 1950 over 70 countries have opened their first national stock exchanges can such exchanges increase economic growth i present a data set of my construction that describes the exchange openings that occurred between 1960 and 1998 and find that these exchanges have generated increases in growth during their first 5 years of existence although the longer term results are ambiguous

inflation thresholds and the finance growth nexus abstract the robustness of the cross sectional relationship between the size of a country s financial sector and its rate of economic growth is by now well established in this article we examine whether the strength of this relationship varies with the inflation rate using five year averages of standard measures of financial development inflation and growth for 84 countries from 1960 to 1995 a series of rolling panel regressions show that there is an inflation threshold for the finance growth relationship that lies between 13 and 25 percent when inflation exceeds the threshold finance ceases to increase economic growth we also find that the level of financial depth varies inversely with inflation in low inflation environments and that disinflation is associated with a positive effect of financial depth on growth

the quality and quantity of bank intermediation and economic growth evidence from asia pacific we investigate the impact of the quantity and quality of bank intermediation on economic growth across 14 asia pacific economies over 2003 2015 measures of bank shareholder value efficiency as wel

remittances finance and growth does financial development foster the impact of remittances on economic growth abstract there is no consensus in the literature regarding the long run impact of remittances on economic growth previous studies have shown that it might be related to financial development in the transfer receiving country but the direction of the link remained unclear i contribute to this literature by using a newly created index of overall financial development and two different estimation methods i measure the importance of remittances given financial development for economic growth in developing countries as there is no widely accepted measure of financial sector development i estimate an index of overall financial conditions it is created by means of an unobserved components model and used to determine the relevance of the financial sector as a transmission channel for remittances to affect economic growth i show that the more financially developed a country is the smaller the impact of remittances on economic growth remittances can foster growth but the effect is significant only at low levels of financial development this is in line with previous studies which found remittances and financial development to be substitutes however the interaction between the two factors becomes weaker once size depth and efficiency of the financial sector are taken into account my results suggest that while attracting migrants transfers can have important short run poverty alleviating advantages in the long run it might be more beneficial for governments to foster financial sector development

financial dependence global growth opportunities and growth revisited abstract we show that financial development has a non monotonic effect on growth in the rajan and zingales 1998 and fisman and love 2007 sample beyond a threshold financially dependent industries and industries facing good growth opportunities grow disproportionately more slowly

financial development by learning abstract this paper analyzes financial development driven by accumulation of information through learning by doing financial intermediaries discover good investment opportunities by making loans to industrial projects they thereby accumulate information that improves the allocation of savings an initial equilibrium with poor information and thus no industrial investment may trap the economy in financial underdevelopment such a trap is informational and can be overcome by the remedies that resolve informational externality

a survey of recent developments in the literature of finance and growth this paper provides a survey of the recent progress in the literature of financial development and economic growth the survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables although the positive role of finance on growth has become a stylized fact there are some methodological reservations about the results from these empirical studies several key issues unresolved in the literature are highlighted the paper also points to several directions for future research

the effect of financial development on economic growth a meta analysis in this article we contribute to the current debate on the sign and size of the finance growth relation to this purpose we use a meta analysis with 551 estimates from 68 empirical studies that t

a simultaneous equations model of finance and growth fiml estimates for india in the relationship between economic growth and financial development it is generally conceded that both variables are likely to be interdependent however no attempt has been made so far to estimate a simultaneous equations model to test whether finance causes growth or vice versa this article uses the full information maximum likelihood fiml method to estimate a two equations model of growth and finance for india to determine the strength of this interdependence our results show that financial developments fd have a small but significant permanent growth effect however there is no evidence to support the view that where enterprise leads finance follows

net foreign asset com position does financial development matter abstract we investigate the relationship between a country s domestic financial development and the composition of its net foreign asset position using a pooled mean group estimator and data for 50 countries for the 1970 2007 period the results show that financial development reduces a country s long run net foreign asset position in addition financial development leads to higher net equity and lower net debt positions these findings confirm the theoretical predictions of mendoza et al 2009 the results are robust to using different indicators of financial development and inclusion of the level of development of a country in the cointegrating relationship

good bye financial repression hello financial crash some unintended consequences of financial liberalization in latin america are analyzed in this paper intrinsic imperfectious in financial markets and the policy dilemmas they pose are reviewed first the stylized facts of southern cone experiments in financial liberization are then presented alternative ways of organlzing domestic capital markets under latin american conditions are discussed and an eclectic reform mongering program is proposed

monetary policy news in the us effects on emerging market capital flows abstract we examine the impact of us monetary policy news on portfolio flows to emerging markets using a bayesian vectorautoregression that accounts for expectations of future monetary policy we define the us monetary policy news shock as one that increases monetary policy expectations while leaving the policy rate unchanged results suggest that the impact of this shock on portfolio flows as a share of gdp is economically small on aggregate but varies considerably across countries the countries we identify as being the most affected also experienced larger volumes of capital in and outflows before and after the 2013 taper tantrum episode respectively also macroeconomic performance and external vulnerabilities may matter however financial openness does not seem to be associated with differences in effects on capital flows over our sample period

studying the effects of household and firm credit on the trade balance the composition of funds matters i introduction the implications of higher levels of financial development have been investigated in a large number of studies both in the empirical growth and in the financial crisis literatures 1 a widely used indicator of financial development is the relative importance of loans issued by commercial banks and other financial intermediaries to the entire private sector that is the private credit to gross domestic product gdp ratio following the definition by king and levine 1993a 1993b a higher level of private credit indicates better developed financial markets and easier credit access for businesses and households yet these two types of borrowers vary in terms of the use of credit and might have different effects on macroeconomic performance in this article we study the link between the components of private credit and the trade balance we focus on the distinction between household and corporate sector credit and investigate whether these two types of credit have adverse effects on the trade balance of goods and services this article builds on a theoretical framework by backus kehoe and kydland 1994 who study the dynamics of the trade balance we extend their work by assuming two types of households one being credit constrained due to enforcement problems we then ease the credit constraints on households and firms and study the hypothesized effects by comparative statics analysis more specifically we argue that an increase in household credit raises the demand for consumption goods whereas firm credit growth raises the demand for investment goods while both can have a negative impact on the trade balance the difference is important because borrowing to finance consumption does not add to the productive capacity of an economy and to greater export earnings frankel and rose 1996 firm credit on the other hand has the potential to increase investment by relaxing the credit constraints on firms thus increasing exports and trade balance exploring the decomposition of private credit in emerging countries is relevant for several reasons first the effects of the increased level of household credit in emerging economies are still ambiguous on the one hand better access to credit helps credit constrained households to smooth out their consumption on the other hand it boosts spending and hence decreases savings in an influential paper japelli and pagano 1994 show that liquidity constraints on households raise the saving rates they also find empirical evidence that an increase in household credit decreases saving rates for a sample of organization for economic cooperation and development oecd countries yet the effects of household credit in emerging economies have not been explored second if we find that household and firm credit have different impacts on the trade balance of goods and services this underlines the importance of the decomposition of private credit which will also have key implications for the financial development growth link the level of private credit in emerging economies has been rising steadily after the financial liberalization process that took place in early 1990s however higher levels of total private credit do not necessarily imply higher levels of firm credit in fact data for emerging economies show that household credit rather than firm credit has been rapidly increasing in the past decade the higher share of household credit in the total private credit can crowd out investment especially in countries where stock and bond markets are not well developed to finance investment finally a possible negative link between household credit and trade balance has important policy implications for emerging economies as argued by wood 1997 the international monetary fund continues to place most emphasis within its programmes on the stabilisation objective and therefore the core of imf programmes continues to be based upon the restriction of domestic credit creation

thresholds in the finance growth nexus a cross country analysis thresholds of inflation government size trade openness and per capita income for the finance growth nexus are investigated using five year averages of standard variables for 84 countries from 1965 to 2004 the results suggest that i high inflation crowds out positive effects of financial depth on long run growth ii small government sizes hurt the finance growth nexus in low income countries while large government sizes hurt high income countries iii low levels of trade openness are sufficient for finance growth nexus in high income countries but low income countries need higher levels of trade openness for similar magnitudes of the finance growth nexus and iv catch up effects through the finance growth nexus are higher for moderate per capita income levels

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

alternative econometric approaches for analysing the role of the financial sector in economic growth time series evidence from ldcs abstract the study determines and analyses the effects of financial intermediation on the growth of real gdp in ldcs by employing annual data for 71 countries over varying periods that generally span the 1960s and 1980s based on the modified version of the orthodox model framework and an entirely new model framework that recognizes the external effects of the financial sector on the real sector as well as effects of the financial sector on the productivities of factor inputs engaged therein we estimate regression equations for each country our findings are as follows a financial intermediation promotes economic growth in about 85 of the countries b as compared with factors that have often been emphasized in the literature viz export expansion capital formation ratio and labour force growth as important growth promoters financial intermediation is practically at par with export expansion and capital formation ratio and superior to labour force growth as partners in promoting economic growth c the growth promoting effects of financial intermediation are more predominant in low income than in high income ldcs and d the growth promoting effects of financial intermediation are practically invariant across the various regions of the globe

financial development industrialization the role of institutions and government a comparative analysis between india and china this research is the first comparative attempt incorporating the role of economic demographic sectoral contribution government and trade in explaining financial development for india and china

the legal environment banks and long run economic growth this paper examines the relationship between the legal system and banlding development and traces this connection through to long run rates of per capita gdp growth capital stock growth and productivity growth the data indicate that countries where the legal system 1 emphasizes creditor rights and 2 rigorously enforces contracts have better developed banks than countries where laws do not give a high priority to creditors and where enforcement is lax furtherrnore the exogenous component of banking development the component defined by the legal environment is positively and robustly associated with per capita growth physical capital accumulation and productivity growth this paper addresses two questions first do crosscountry differences in the legal rights of creditors the efficiency of contract enforcement and the origin of the legal system explain cross country differences in the level of banking development second do better developed banks cause faster economic development that is is the component of banking development defined by the legal environment positively associated with long run rates of economic growth capital accumulation and productivity growth examining the relationship between the legal system and banking development is valuable irrespective of issues associated with long run growth first banks may influence the level of income per capita and the magnitude of cyclical fluctuations bernanke and gertler 1989 1990 second many economists stress that understanding the evolution of legal and financial systems is essential for understanding economic development north 1981 engerman and sokoloff 1996 consequently quantitative information on the relationship between the legal environment and banks will improve our understanding of business cycles and the process of economic development furthermore examining the causal links between banks and economic growth has both conceptual and policy implications on the conceptual front a long literature debates the importance of banks in economic development starting as early as bagehot 1873 economists have argued that better banks banks that are better at identifying creditworthy firms mobilizing savings pooling risks and facilitating transactions

openness and the finance growth nexus abstract rajan and zingales 2003 hypothesize that openness trade and financial is a crucial determinant of financial development the main policy implication emerging from this hypothesis is that openness should be promoted as a means of facilitating economic growth through financial development while subsequent research confirms that openness affects financial development we study whether finance continues to be growth promoting as economies become increasingly open a key implicit assumption behind the policy recommendation using data from 78 economies for the period 1981 2006 we find that very high levels of financial openness generally erode the growth promoting role of financial development while high trade openness strengthens it these worldwide findings by and large hold for subsamples of sub saharan african latin american and oecd economies notable exceptions are the invariance of the finance growth fg nexus on trade openness in oecd economies and the positive effect of financial openness on the fg link in latin american economies

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

who benefits from financial development new methods new evidence abstract this paper takes a fresh look at the impact of financial development on economic growth by using recently developed kernel methods that allow for heterogeneity in partial effects nonlinearities and endogenous regressors our results suggest that while the positive impact of financial development on growth has increased over time it is also highly nonlinear with more developed nations benefiting while low income countries do not benefit at all we also conduct a novel policy analysis that confirms these statistical findings in sum this set of results contributes to the ongoing policy debate as to whether low income nations should scale up financial reforms

non linear growth effects of financial development does financial integration matter using both macro and industry level data this paper analyses the non linear effects of financial development and international financial integration on economic growth in europe special attention is devoted to modeling threshold effects with respect to the depth of financial markets as a measure of economies absorption capacity results reveal evidence of significant non linear effects with less developed european countries gaining more from financial development in contrast benefits of international financial integration become significant at higher levels of financial development the data show that monetary integration in europe significantly contributed to a higher degree of financial integration entry of new eu members to the european monetary union may thus be the mechanism ensuring a virtuous development circle as the adoption of the euro may allow the development of domestic financial markets and financial integration to go hand in hand

what is happening to the impact of financial deepening on economic growth i introduction among the strongest elements of the modern economists canon is that financial sector development has a significant impact on economic growth a generation ago economists like goldsmith 1969 1 and mckinnon 1973 began to draw attention to the benefits of financial structure development and financial liberalization by the early 1990s mckinnon 1991 12 could write with confidence that now however there is widespread agreement that flows of saving and investment should be voluntary and significantly decentralized in an open capital market at close to equilibrium interest rates since the 1990s a burgeoning empirical literature has illustrated the importance of financial sector development for economic growth despite the growing consensus however we find that the link between finance and growth in cross country panel data has weakened considerably over time at the very time that financial sector liberalization spread around the world the influence of financial sector development on economic growth has diminished the seminal empirical work that established the growth finance link is king and levine 1993 which extended the cross country framework introduced in barro 1991 by adding financial variables such as the ratios of liquid liabilities or claims on the private sector to gross domestic product gdp to the standard growth regression they found a robust positive and statistically significant relationship between initial financial conditions and subsequent growth in real per capita incomes for a cross section of about 80 countries in the subsequent decade numerous empirical studies expanded upon this using both cross country and panel data sets for the post 1960 period 2 in this paper we reexamine the core cross country panel result and find that the impact of financial deepening on growth is not as strong with more recent data as it appeared in the original panel studies with data for the period from 1960 to 1989 we consider various explanations for this clear shift first we suggest that financial deepening has a positive effect on growth if not done to excess rapid and excessive deepening as manifested in a credit boom can be problematic even in the most developed markets because it can both weaken the banking system and bring inflationary pressures we test this hypothesis by looking at the finance growth nexus among countries that have or have not experienced financial sector crises we find that once crisis episodes are removed the finance growth relationship remains intact its weakening over time thus seems to be a result of an increased incidence of crises in later years our second and related hypothesis is that the widespread liberalization of financial markets that occurred in the late 1980s and early 1990s made financial deepening less effective this is reminiscent of robert lucas s 1975 critique of econometric policy evaluation advanced three decades ago policies that have promoted and or forced increases in financial depth over the past two decades may have altered the basic structural relationship between finance and growth this could occur if the observed benefits of financial deepening led many countries to liberalize before the associated legal and regulatory institutions were sufficiently well developed as a consequence the impact of financial deepening on growth would become smaller our evidence does not indicate that recent liberalizations are responsible for the breakdown of the finance growth link however there may be an indirect link as premature financial development can lead to financial crises that have real effects third we examine the role of global equity markets that have grown in importance and prominence in the years over which the finance growth relationship disappeared however we do not find any evidence to suggest that equity market growth has substituted for the role of credit markets and banks in particular

infrastructure finance and industrial takeoff in england that financial matters did not constrain industrial takeoff in the uk is generally accepted in the historical literature in contrast contemporary empirical analyses have found evidence that financial development can be a causal determinant of economic growth we look to reconcile these findings by concentrating on a particular aspect of industrializing uk where inefficiencies in finance could have had bite the finance of physical infrastructures we document the historical record and develop the importance of spatial disaggregation and spillovers in both technological and financial development we develop a simple model that captures the nature of infrastructure finance within a theory of endogenous growth where financial costs are endogenous we argue that the conception of the finance growth nexus as a largely static aggregative phenomenon misses out a good deal of complexity and we relate that complexity to a number of implications for regulation of both financial systems and the emergence of infrastructures

is full banking integration desirable abstract we analyze the links between banking integration and economic development for a sample of oecd countries we measure banking integration considering indicators that merge not only openness but also connectedness with other banking systems we plug these indicators into income regressions also controlling for other relevant variables considered by the literature in contrast to previous initiatives this second stage explicitly takes into account the differing levels of economic development of the countries in our sample since the benefits of enhanced banking integration might not be generalizable to this end we implement quantile regression also considering the presence of endogenous regressors results show that bank connectedness is more important for economic development than bank openness but the combined effect i e banking integration overall is positive and significant the quantile regression models used in the second stage show that the effects are stronger for the poorest economies

local financial development and growth using a unique sample of net domestic product data for districts in india i investigate the connection between banking sector development human capital and economic growth at the sub national level using disaggregate data avoids many of the omitted variable problems that plague cross country studies of the finance growth connection and facilitates an instrumentation strategy the findings show that the growth of many districts in india is financially constrained due to lack of banking sector development and that the relationship between finance and growth may be non linear for the districts in the sample moving from the 75th percentile of credit net domestic product to the 25th percentile implies an average loss of 4 percent in growth over the 1990s this indicates that the gains from increased banking sector outreach may be large the analysis shows that human capital deepening can reduce the effect of the financial constraint and help decouple growth from financial development in a district at the 25th literacy percentile the implied growth loss due to a constrained banking sector is twice as large as in a district at the 75th literacy percentile thus higher levels of human capital may activate alternative growth and production channels that are less finance intensive

does finance alter the relation between inequality and growth this paper introduces a model in which greater inequality reduces growth in economies with low levels of financial development but that this effect is attenuated in economies with more developed systems the model also predicts that individuals in economies with developed financial markets have a higher tolerance to inequality using a panel dataset that covers a large number of countries this paper shows empirical evidence that is consistent with the main predictions of the model overall this paper s major findings highlight that some of the pernicious effects of inequality can be attenuated by improving access to credit jel d3 e6 p1 o4 i2

funding growth in bank based and market based financial systems evidence from firm level data the authors investigate whether firms access to external financing to fund growth differs between market based and bank based financial systems using firm level data for forty countries they compute the proportion of firms in each country that relies on external finance and examine how that proportion differs across financial systems they find that the development of a country s legal system predicts access to external finance and that stock markets and the banking system have different effects on access to external markets the development of securities markets is related more to the availability of long term financing whereas the development of the banking sector is related more to the availability of short term financing they find no evidence however that firms access to external financing is predicted by an index of the development of stock markets relative to the development of the banking system

evidence on economic growth and financial development in montenegro macroeconomic development must be supported by a stable and efficient financial system there are many different measures of financial development that are suggested when the relationship between growth and financial system is analyzed in this paper we will identify the most important indicators of the financial development in montenegro due to the fact that in the last decade montenegrin financial market has been developing we want to see if that fact had an influence on the economic growth as well as if there is significant positive relationship between the growth and financial development the intention of this article is to use principal components in order to examine correlation among indicators and find means or main components this technique has the advantage of giving more general measures of financial development rather than individual variables for bank or stock market development it could be concluded that it is difficult to identify the specific components of the financial system most associated with the economic growth

has the finance growth link been broken panel data evidence from latin america and the caribbean abstract this paper examines the two way relationship between economic growth and financial development for latin america and the caribbean lac the sample consists of 32 emerging and developing countries from lac spanning the period 1970 2014 controlling for country and time fixed effects the first central finding indicates that financial development is not a significant factor driving economic growth the evidence suggests however that larger government has a robust and significant effect on economic growth the second key finding is that the effect of economic growth on financial development is not significantly different from zero together these two main findings indicate that the finance growth link in lac has been broken over the 1970 2014 period the empirical results inform economic debates in lac and highlight the importance of public policy to improve the finance growth relationship

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

are financial development and corruption control substitutes in promoting growth abstract while financial development and corruption control have been studied extensively their interaction has not we develop a simple model in which low corruption and financial development both facilitate the undertaking of productive projects but act as substitutes in doing so the substitutability arises because corruption raises the need for liquidity and thus makes financial improvements more potent conversely financial underdevelopment makes corruption more onerous and thus raises the gains from reducing it we test this substitutability by predicting growth of countries and industries using measures of financial development lack of corruption and a key interaction term both approaches point to positive effects from improving either factor as well as to a substitutability between them the growth gain associated with moving from the 25th to the 75th percentile in one factor is 0 63 1 68 percentage points higher if the second factor is at the 25th percentile rather than the 75th the results show robustness to different measures of corruption and financial development and do not appear to be driven by outliers omitted variables or other theories of growth and convergence

flex fuel vehicle adoption and dynamics of ethanol prices lessons from brazil abstract focusing on dynamics of the relative prices of substitute fuels namely ethanol and gasoline this study quantifies the impact of the increase in shares of flex fuel vehicles ffvs in the vehicle fleet on the domestic ethanol prices in brazil a modified partial adjustment model is employed estimation results provide strong support for our research hypotheses i when consumers can choose between the fuels the relative ethanol and gasoline prices converge to a long run equilibrium level which is determined by the fuel economy and ii price dynamics are largely determined by market supply and demand factors including the price of sugar ethanol exports and composition of vehicle fleet furthermore the impacts of demand factors such as ethanol exports are strengthened by the increasing proportion of ffvs in the vehicle fleet

financial liberalization financial sector development and growth evidence from malaysia abstract the objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of malaysia using time series data from 1960 to 2001 we conduct cointegration and causality tests to assess the finance growth link by taking the real interest rate and financial repression into account the empirical evidence suggests that financial liberalization through removing the repressionist policies has a favorable effect in stimulating financial sector development financial depth and economic development are positively related but contrary to the conventional findings our results support robinson s view that output growth leads to higher financial depth in the long run

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

reassessing the law finance and growth nexus after the recent great recession abstract the paper provides a reassessment of the relationship between financial structure financial development and economic growth conducting cross section and panel econometric analyses for a sample of 62 countries over 1980 2016 in line with the traditional literature we confirm the existence of a positive cross country relationship between the legal system financial development and growth even including the experience of the recent great recession in addition when jointly assessing the effect of financial structure and financial development on growth it emerges that a more bank oriented economy enjoys higher benefits in terms of long run real gdp per capita growth than a market oriented one when we consider variations across countries and over time we find that both financial structure and financial development affect growth but in an opposite way as the cross section analysis in particular when we control for their joint effect on growth we observe a positive impact of market based financial systems and a negative impact of the overall financial development we also provide evidence of the existence of a positive and significant relationship between economic growth and shadow banking during the 2002 2016 period highlighting the crucial role played by non bank financial intermediation in complementing traditional banking and in affecting the real economy

explaining ethiopia s growth acceleration the role of infrastructure and macroeconomic policy summary ethiopia has experienced an impressive growth acceleration over the past decade this was achieved on the back of an economic strategy emphasizing public infrastructure investment supported by heterodox macro financial policies this paper identifies the drivers of ethiopia s recent growth episode and examines the extent to which they were typical or unique it combines country specific information with the results of a cross country panel regression model we find that ethiopia s growth is explained well by factors correlating with growth in a broad range of countries in recent decades including public infrastructure investment restrained government consumption and a conducive external environment on the other hand we argue that the policy mix that supported very high levels of public investment in ethiopia was to some extent unique interestingly macroeconomic imbalances due to this heterodox policy mix only moderately held back growth which helps explain why ethiopia was able to grow so fast in spite of their presence their negative effects were quantitatively much less important than the positive growth drivers they helped to achieve the results suggest that getting infrastructure right may outweigh moderate shortcoming in the macro framework at early stages of development we further relate this country specific finding to the recent growth literature

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

thresholds of financial development in the euro area we analyse the dynamics of financial development and economic growth in the euro area as these countries went through considerably higher levels of financial development using a balanced panel data of 38 years from 1980 to 2018 we offer new evidence on the finance growth nexus we show the presence of non linearity as there is an inverted u shaped relationship between finance and growth in the long run estimating the thresholds in the finance growth nexus we notice a threshold effect at 74 86 of gdp for domestic credit 51 of gdp for stock turnover ratio and 65 of gdp for stock market capitalisation we notice that exceeding the threshold causes deceleration in economic growth as too much finance results in crowding out effect for productive economic activities the panel granger causality test results show that financial development should be associated with optimal growth performance these findings in the euro area provide some useful policy implications to the emerging and developing economies in designing their financial development strategies