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Financial Systems and Economic Growth: An Evaluation Framework for Policy

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Abstract

The purpose of this paper is to develop an analytical framework for discussing the link between financial systems and economic growth. Financial systems help overcome an information asymmetry between borrowers and lenders. If they do not function well, economic growth will be negatively affected. Three policy implications follow. First, the analysis underscores the importance of maintaining solid legal foundations because the financial system relies on these. Second, it demonstrates the necessity for reforming tax policy as it applies to investment, as this is demonstrated to significantly affect the operation of the financial system. Finally, given the importance of financial development for economic growth, a more in-depth review of New Zealand’s financial system in the context of financial regulation and supervision would be valuable.

Suggested Citation

  • Iris Claus & Veronica Jacobsen & Brock Jera, 2004. "Financial Systems and Economic Growth: An Evaluation Framework for Policy," Treasury Working Paper Series 04/17, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:04/17
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    File URL: https://treasury.govt.nz/sites/default/files/2007-10/twp04-17.pdf
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    Cited by:

    1. Cameron, Linda & Chapple, Bryan & Davis, Nick & Kousis , Artemisia & Lewis, Geoff, 2007. "New Zealand Financial Markets, Saving and Investment," Occasional Papers 07/5, Ministry of Economic Development, New Zealand.
    2. Newberry Susan, 2014. "The Use of Accrual Accounting in New Zealand’s Central Government: Second Thoughts," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 4(3), pages 283-297, December.
    3. Miguel SARMIENTOO & Andrés CEPEDA & Hernando MUTIS & Juan F. PÉREZ, 2013. "Nueva Evidencia sobre la Eficiencia de la Banca," Archivos de Economía 10705, Departamento Nacional de Planeación.
    4. Lauren Rosborough & Geordie Reid & Chris Hunt, 2015. "A primer on New Zealand's capital markets," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 78, pages 3-22, May.

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    More about this item

    Keywords

    Economic growth; financial development; financial systems; financial regulation; legal system; institutions; tax;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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