Financial Development and Economic Growth

In recent years there has been substantial theoretical and empirical work on the role that financial markets play in fostering economic growth and development. This paper provides a selective review of the literature, as well as new empirical evidence on the relationship between financial development and economic growth for a large cross-section sample of countries. While the results indicate that the effect of financial development on growth is positive, the size of the effect varies with different indicators of financial development, estimation method, data frequency, and the functional form of the relationship.Economic growth;Development;financial markets, equation, statistics, stock market, stock market capitalization, bond, independent variables, correlation, financial systems, financial intermediaries, financial intermediation, equations, financial system, statistical significance, bond market, bond market capitalization, financial sector, nonlinearity, regression analysis, estimation method, correlations, liquid liabilities, bond markets, liquid markets, survey, instrumental variables, descriptive statistics, financial structure, public bond, explanatory power, stock market development, financial repression, causation, domestic financial systems, financial statistics, samples, interest rate ceilings, international financial markets, quadratic form, reserve requirements, predictions, hedging, linear model, sample sizes, international financial statistics, econometrics, stockholders, time series, financial services, stock markets, nonlinear relationship, financial market, empirical exercise, financial dependence, functional form, financial reform