Does Institutional Diversification of the Financial System Promote Economic Growth?

Posted: 30 Aug 2011 Last revised: 15 May 2015

See all articles by Basma Majerbi

Basma Majerbi

Gustavson School of Business, University of Victoria

Date Written: August 25, 2011

Abstract

This paper revisits the link between finance and growth and proposes a new comprehensive measure of financial development that captures the overall structure of the financial sector and its degree of institutional diversification (ID). We document a significant link between this new measure and real GDP per capita growth. Countries with more diversified financial system structures tend to experience faster growth than countries with lower levels of institutional diversification. The ID measure remains statistically and economically significant across various model specifications and even after controlling for the standard financial development indicators, such as private credits by banks, whose significance for growth seems to be weakening over more recent time periods.

Keywords: Financial System Structure, Economic Growth, Financial Development, Panel Data

JEL Classification: G15; G21 ; O16

Suggested Citation

Majerbi, Basma, Does Institutional Diversification of the Financial System Promote Economic Growth? (August 25, 2011). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1916980 or http://dx.doi.org/10.2139/ssrn.1916980

Basma Majerbi (Contact Author)

Gustavson School of Business, University of Victoria ( email )

Victoria, British Columbia
Canada
250-472-4281 (Phone)

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