Impact of Development and Efficiency of Financial Sector on Economic Growth: Empirical Evidence from Developing Countries

This paper analyses the impact of development and efficiency of financial sector on economic growth of a group of selected developing countries using a cross-country data averaged over the period 2005-2009. The results show that the impact of financial sector efficiency on economic growth is significantly positive for developing countries. For a sample of 50 developing countries the effect of financial sector development and financial sector efficiency is positive and highly significant. The sensitivity analysis also shows that the relationship remain positive and significant no matter what combination of the omitted variables are used in the basic model. Thus, our findings support the core idea that development and efficiency of financial sector stimulates economic growth.