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Financial intermediation and growth : Causality and causes

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  • Levine, Ross
  • Loayza, Norman
  • Beck, Thorsten

Abstract

The authors evaluate: a) whether the level of development of financial intermediaries exerts a casual influence on economic growth; and b) whether cross-country differences in legal and accounting systems (such as creditor rights, contract enforcement, and accounting standards) explain differences in the level of financial development. Using both traditional cross-section, instrumental-variable procedures and recent dynamic panel techniques, they find that development of financial intermediaries exerts a large causal impact on growth. The data also show that cross-country differences in legal and accounting systems help determine differences in financial development. Together, these findings suggest that legal and accounting reform that strengthens creditor rights, contract enforcement, and accounting practices boosts financial development and accelerates economic growth.

Suggested Citation

  • Levine, Ross & Loayza, Norman & Beck, Thorsten, 1999. "Financial intermediation and growth : Causality and causes," Policy Research Working Paper Series 2059, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2059
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    More about this item

    Keywords

    Financial Intermediation; Decentralization; Economic Theory&Research; Public Health Promotion; Payment Systems&Infrastructure; Financial Intermediation; Financial Economics; Achieving Shared Growth; Economic Theory&Research; Governance Indicators;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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