Theory and evidence ross levine nber working paper no. Levine argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive, firstorder relationship between financial development and economic growth. The experience of 10 subsaharan african countries revisited anthony enisan akinlo and tajudeen egbetunde abstract. Furthermore, schumpeter argued, a developed financial system will mobilize. New insights from a panel causality approach kojo menyaha, saban nazlioglub. Financial development and economic growth in underdeveloped countries hugh t. A free powerpoint ppt presentation displayed as a flash slide show on id.
There is evidence that the financial development level is a good. Imports results obtained using the generalized method of moments dynamic panel show that the variable that. Financial development, trade openness and economic growth. There is even evidence that the level of financial development is a good predictor of future rates of economic growth, capital accumulation, and technological change. To achieve the purpose of this research, we estimated the real. They argue that this explains why a negative impact is found between banking sector.
Financial development real sector output economic growth 1. Although various studies have questioned the causal nexus between financial development and economic growth, most theoretical and empirical reasoning suggests a positive first order relationship levine, 1997. These issues would have an impact on choosing the design for. Again, odhiambo 2008 with ardl bound testing procedure tested the dynamic causal relationship between stock market development and economic growth for south africa with data from 19712007. In the financegrowth nexus literature, a large body of research has empirically shown that financial development exerts positive impact on economic growth. There is a second research agenda that studies the political, cultural, and even geographic. Historical perspectives on financial development and. Tsionasb adepartment of economic and regional development, panteion university, leof. January 2003 aassociate professor ofeconomics, vanderbilt university, box 1819 station b, nashville, tn 37235, usa and research associate, national bureau ofeconomic research. Thisarticle decomposes the welldocumented relationship between financialdevelopment and growth. July 1998 comments welcome abstract this paper analyzes the relationship between international.
The series deals with key economic and development problems, particularly. Financial development, financial openness, and economic growth. This critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive, firstorder relationship between financial development and economic growth. Economic growth and development the ultimate endgame of economic analysis a few warm up questions what is development. With economic growth gaining prominence in respect of development discourse, economists have focused on how to propel economies to higher states of economic growth. The paper provides a survey of the literature on the relationship of financial development and economic growth. Financial development and economic growth in the caricom. Patrick yale university an observed characteristic of the process of economic development over time, in a marketoriented economy using the price mechanism to allocate resources, is an increase in the num. Financial development and economic growth in the caricom sub region varuna ramlala, patrick kent watsonb, 1 a department of economics, university of the west indies, st. The paper offers a subjectivist approach to economic growth and an institutional view of development. The author argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between. Introducing a new broadbased index of financial development.
Specifically, it is shown that credit provided by banks as a % of gdp has a nonlinear effect on growth and, given the actual financing structure, the peak of the positive impact turning point is close to 50% of the gdp. Shen and lee 2006 also demonstrate a similar nonlinear, inverse ushaped relationship between financial development and economic growth, where a higher level of financial development tends to slow down economic growth. These issues would have an impact on choosing the design. Empirical studies periodically reevaluate the relationship between nancial development and economic growth. The paper examines the long run and causal relationship between. Evidence from india klaus deininger songqing jin hari k. Financial development, productivity, and economic growth. Economic growth, financial deepening and financial inclusion address by dr rakesh mohan, deputy governor of the reserve bank of india, at the annual bankers conference 2006, hyderabad, 3 november 2006.
Financial development and economic growth new data and empirical analysis michael graff swiss federal institute of technology, institute for business cycle research, eth zentrum, weh, ch8092 zurich, switzerland abstract the paper discusses the significance of financial development as a determinant of economic development. Levine argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive, firstorder relationship between financial development. Financial development, real sector, and economic growth. Shen and lee 2006 also demonstrate a similar non linear, inverse ushaped relationship between financial development and economic growth, where a higher level of financial development tends to slow down economic growth. It discusses the results of an empirical analysis between both variables and economic growth. The role of financial development in growth and investment. The world bank policy research department finance and private sector development division. As soon as development economics emerged as a distinct field of study after the world war ii, it had the appearance of being a bastard child of growth economics and, in fact, this child did not differ from what could be expected from a genuine son of growth economics.
This study contributes to understanding the role of financial development on economic growth theoretically and empirically. In the theoretical part of the paper, by developing a solowswan growth model augmented with financial markets in the tradition of wu, hou, and cheng 2010, we show that debt from credit markets and equity from stock markets are two long run determinants of gdp per. The data cover the regressions according to the maximum of 110 countries and at least 10. Financial development and economic growth views and agenda pdf if you searching to evaluate financial development and economic growth views and agenda pdf financial development and economic growth views and agenda pdf price. Financial development, financial openness, and economic growth this paper examines the importance of financial development and openness.
The author argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth. Financial development and economic growth econstor. This paper reexamines the empirical relationship between financial development and economic growth. Financial integration, financial development and economic. This draws heavily on my earlier lecture on a similar subject at the ficciiba conference in mumbai on 26 september 2006. The two words growth and development were often used interchangeably in economic discussion. Specifically, it is shown that credit provided by banks as a % of gdp has a non linear effect on growth and, given the actual financing structure, the peak of the positive impact turning point is close to 50% of the gdp. In the theoretical part of the paper, by developing a solowswan growth model augmented with financial markets in the tradition of wu, hou, and cheng 2010, we show that debt from credit markets and equity from stock markets are two long run determinants of gdp per capita. Financial development is an important determinant of economic growth. Financial development and economic growth in ghana. Financial integration, financial development and economic growth jos. There is evidence that the financial development level is a good predictor of future rates of economic growth, capital accumulation, and technological change. Introducing a new broadbased index of financial development1 prepared by katsiaryna svirydzenka authorized for distribution by petya koeva brooks january 2016 abstract there is a vast body of literature estimating the impact of financial development.
More debatable, however, have been issues about how financial development promotes growth. This paper empirically investigated the impact of financial development on economic growth in nigeria during the period 1986 2012. Nagarajan the world bank development research group. The results suggest that financial development exerts a positive and statistically significant effect on economic growth and investment is an important channel through which financial development feeds economic growth. Land reforms, poverty reduction, and economic growth. Financial development and economic growth 689 lief 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 side show, responding passively to economic growth and industrialization. Financial development, financial openness, and economic. Citations of financial development and economic growth. Evans, green, and murinde 2002 evaluate the contribution of human capital and financial development to economic growth in a panel of 82 countries using the translog production function as a framework for estimating the relationships among. Pdf financial development and economic growth in turkey.
The influence of financial market development on economic. Author links open overlay panel george adu a george marbuah b justice tei mensah b. The body of work would push even most skeptics toward. Financial market development has emerged as one of the policy levers central banks and governments use to target economic growth. Debate on financegrowth nexus has started since schumpeter 1911 forwarded the view of the importance of financial sector development for. Views and agenda article pdf available in journal of economic literature 352. My goal in these notes is to talk about some of these chickenandegg situations, in which underdevelopment is seen not as a failure of some fundamental economic parameters. In particular, the term development regards the prevailing rules of the game and their effects on the key variables for economic activity. Jun 27, 2003 policymakers and economists generally agree that financial developmentthat is, wellfunctioning financial institutions and markets, such as commercial and investment banks, and bond and stock exchangescontribute to economic growth. Po l i c y re s e a r c h wo r k i n g pa p e r 4448 land reforms, poverty reduction, and economic growth.
Historical perspectives on financial development and economic growth by peter l. Introduction financial development is an important determinant of economic growth. Ourresults suggest that indicators of financial development arecorrelated with. In particular, the term development regards the prevailing rules of the game and their effects on the key variables for economic activity to take off. The adb economics working paper series is a forum for stimulating discussion and eliciting feedback on ongoing and recently completed research and policy studies undertaken by the asian development bank adb staff, consultants, or resource persons.
Views and agenda ross levine journal of economic literature, vol. Policymakers and economists generally agree that financial developmentthat is, wellfunctioning financial institutions and markets, such as commercial and investment banks, and bond and stock exchangescontribute to economic growth. Pdf financial development and economic growth in nigeria. Studies thus, far have looked at some of the key determinants to sustained economic growth, but studies on how financial development and human capital can impact on the economic growth of developing country like sierra leone are scant.