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Does financial development affect growth?

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  • Karima Saci
  • Gianluigi Giorgioni
  • Ken Holden

Abstract

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.

Suggested Citation

  • Karima Saci & Gianluigi Giorgioni & Ken Holden, 2009. "Does financial development affect growth?," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1701-1707.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:13:p:1701-1707
    DOI: 10.1080/00036840701335538
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    References listed on IDEAS

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    1. Beck, Thorsten & Levine, Ross, 2004. "Stock markets, banks, and growth: Panel evidence," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 423-442, March.
    2. Mr. Giovanni Favara, 2003. "An Empirical Reassessment of the Relationship Between Finance and Growth," IMF Working Papers 2003/123, International Monetary Fund.
    3. M. Brownbridge & C. Kirkpatrick, 2000. "Financial Regulation in Developing Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 37(1), pages 1-24, October.
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