Economic Growth and Financial Depth : Is the Relationship Extinct Already?
Although the finance-growth nexus has become firmly entrenched in the empirical literature, studies that question the strength of the empirical results have appeared and seem to have become more frequent as well. In this paper we reexamine the core crosscountry panel results that established the relationship between financial depth and growth rates. We examine the sensitivity of the core result to changes in time period and variation in the sample of countries included.We find that the finance-growth relationship in not as strong with more recent data as itwas in the original studies with data for the period from 1960 to 1989. We offer twopossible explanations. First, financial depth may have had greater value as a shock absorber in the 1970s and 80s, decades characterized by worldwide nominal shocks. Second, the spread of financial liberalization in the 1980s may have led to increasing financial depth in countries that lacked the legal or regulatory infrastructure to successfully exploit financial development.We use a rolling regression technique to see which countries provide stronger support forthe finance growth relationship. Among poorer counties, the relationship is positive butimprecisely measured and among very rich countries it is absent. However, there is clear indication that financial deepening increases growth among the countries with real GDP per capita between $3,000 and $12,000 (1995 US). In a word, we find the widely accepted effect of finance on growth to be still present but fragile
Year of publication: |
[2008]
|
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Authors: | Rousseau, Peter L. |
Other Persons: | Wachtel, Paul (contributor) |
Publisher: |
[2008]: [S.l.] : SSRN |
Saved in:
freely available
Extent: | 1 Online-Ressource (26 p) |
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Series: | NYU Working Paper ; No. EC-05-15 |
Type of publication: | Book / Working Paper |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 2005 erstellt |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012769811
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