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Financial development and economic growth in developing countries

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  • P.J. Dawson

    (School of Agriculture, Food and Rural Development, Newcastle University, Newcastle upon Tyne NE1 7RU, UK)

Abstract

The hypothesis that financial development promotes economic growth in developing countries is largely supported by empirical studies, though contrary evidence also exists. This relationship is re-examined using annual panel data for 44 developing countries for 1974–2001. Three sources-of-growth equations, which are specified from aggregate production functions, are estimated: two are theoretically consistent, while the third uses a common proxy (DEPTH) for financial development. Results show conflicting evidence: the theoretically consistent models show a positive and statistically significant relationship between financial development and economic growth, whereas the proxy version shows the opposite. Measuring financial development appropriately appears critical for policy advice

Suggested Citation

  • P.J. Dawson, 2008. "Financial development and economic growth in developing countries," Progress in Development Studies, , vol. 8(4), pages 325-331, October.
    • Handle: RePEc:sae:prodev:v:8:y:2008:i:4:p:325-331
    DOI: 10.1177/146499340800800402
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    References listed on IDEAS

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    Cited by:

    1. Fanta Ashenafi Beyene & Makina Daniel, 2016. "The Finance Growth Link: Comparative Analysis of Two Eastern African Countries," Comparative Economic Research, Sciendo, vol. 19(3), pages 147-167, September.

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