Financial Intermediation and Growth: Causality and Causes

Posted: 10 Oct 2000

See all articles by Ross Levine

Ross Levine

Stanford University; National Bureau of Economic Research (NBER)

Norman Loayza

World Bank - Research Department

Thorsten Beck

City University London - The Business School; Tilburg University - European Banking Center, CentER

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Abstract

This paper evaluates (1) whether the exogenous component of financial intermediary development influences economic growth and (2) whether cross-country differences in legal and accounting systems (e.g., creditor rights, contract enforcement, and accounting standards) explain differences in the level of financial development. Using both traditional cross-section, instrumental variable procedures and recent dynamic panel techniques, we find that the exogenous component of financial intermediary development is positively associated with economic growth. Also, the data show that cross-country differences in legal and accounting systems help account for differences in financial development. Together, these findings suggest that legal and accounting reforms that strengthen creditor rights, contract enforcement, and accounting practices can boost development and accelerate economic growth.

Keywords: Financial development, economic growth, legal system

JEL Classification: O16, O40, G28

Suggested Citation

Levine, Ross and Loayza, Norman and Beck, Thorsten, Financial Intermediation and Growth: Causality and Causes. Available at SSRN: https://ssrn.com/abstract=241269

Ross Levine (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Norman Loayza

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Thorsten Beck

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

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