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The Transitional Dynamic of Finance Led Growth

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  • Razzak, Weshah
  • El Bentour, M

Abstract

We depart from the empirical literature on testing the finance led growth. Instead of regression analysis, we use a semi-endogenous growth model, which identifies two productivity growth paths: a steady state and a transitional path. Steady state growth is anchored by population growth. In the transitional dynamic, productivity growth depends on the typical factors growth rates, and excess knowledge, which is the deviation of TFP in the financial sector from steady state growth. TFP is endogenous. It is an increasing function of global research efforts, which is driven by the proportion of population in developed countries that is engaged in research in finance, and the stock of human capital. We find positive evidence for this theory of TFP in the data of ten developed European countries and the United States. We also found some evidence for finance-led-growth, albeit weaker after the past Global Financial Crisis.

Suggested Citation

  • Razzak, Weshah & El Bentour, M, 2020. "The Transitional Dynamic of Finance Led Growth," MPRA Paper 98482, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:98482
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    References listed on IDEAS

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    More about this item

    Keywords

    Semi endogenous growth; finance; productivity growth;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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