Financial Development and Economic Growth

By Pablo Emilio Guidotti, Jose De Gregorio

December 1, 1992

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Pablo Emilio Guidotti, and Jose De Gregorio. Financial Development and Economic Growth, (USA: International Monetary Fund, 1992) accessed November 8, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines the empirical relationship between long–run growth and the degree of financial development, proxied by the ratio of bank credit to the private sector as a fraction of GDP. We find that this proxy enters significantly and with a positive sign in growth regressions on a large cross–country sample, but with a negative sign using panel data for Latin America. Our findings suggest that the main channel of transmission from financial development to growth is the efficiency of investment, rather than its volume. We also present a model where the negative correlation between financial intermediation and growth results from financial liberalization in a poor regulatory environment.

Subject: Banking, Capital productivity, Credit, Financial markets, Financial sector development, Financial services, Monetary aggregates, Money, Production, Real interest rates

Keywords: Capital productivity, Credit, Eastern Europe, Efficiency of investment, Financial sector development, Financial system, High-productivity state of nature, Investment rate, Monetary aggregates, PPP investment deflator, Private sector, Real interest rates, Representative bank, Savings rate, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1992/101
Stock No:

WPIEA1011992
ISBN:

9781451852455
ISSN:

1018-5941

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