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How Robust is the Relationship between Financial Intermediation and Economic Growth?

Author

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  • HODGES, Hart
  • KNABB, Shawn D.

Abstract

The question of whether financial intermediation has a first order effect on the development process has long been debated. There have also been questions about the ‘robustness’ of the empirical results that suggest financial development does indeed have a first order effect. This paper addresses the second issue within this debate by assessing the robustness of the link between financial development and economic growth to variations in the sample (countries included in the data set). Specifically, the procedure identifies the relative influence of ordered subsets in the data to determine whether or not these financial variables change sign or lose statistical significance after the removal a specific subset. The results of this exercise suggest that financial intermediation appears to have a first order effect, that is most of the variables are robust to variations in the sample, using a traditional cross-country growth regression framework and an instrumental variables framework (GMM).

Suggested Citation

  • HODGES, Hart & KNABB, Shawn D., 2010. "How Robust is the Relationship between Financial Intermediation and Economic Growth?," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(1).
    • Handle: RePEc:eaa:aeinde:v:10:y:2010:i:1_3
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    File URL: http://www.usc.es/economet/reviews/aeid1013.pdf
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    Citations

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    Cited by:

    1. Michiel Bijlsma & Clemens Kool & Marielle Non, 2018. "The effect of financial development on economic growth: a meta-analysis," Applied Economics, Taylor & Francis Journals, vol. 50(57), pages 6128-6148, December.
    2. Michiel Bijlsma & Clemens Kool & Marielle Non, 2018. "The effect of financial development on economic growth: a meta-analysis," Applied Economics, Taylor & Francis Journals, vol. 50(57), pages 6128-6148, December.
    3. WARBURTON, Christopher E.S., 2013. "When Markets Fail: Asset Prices, Government Expenditures, and the Velocity of Money," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 13(2), pages 73-92.

    More about this item

    Keywords

    Financial Development; Economic Growth; Sensitivity Analysis;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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