Financial Development and Economic Growth

Author/Editor:

Pablo Emilio Guidotti ; Jose De Gregorio

Publication Date:

December 1, 1992

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.

Series:

Working Paper No. 1992/101

Subject:

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

English

Publication Date:

December 1, 1992

ISBN/ISSN:

9781451852455/1018-5941

Stock No:

WPIEA1011992

Pages:

37

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