Financial Intermediation and Growth: Causality and Causes

47 Pages Posted: 27 Oct 2000

See all articles by Ross Levine

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Norman Loayza

World Bank - Research Department

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Multiple version iconThere are 2 versions of this paper

Date Written: February 1999

Abstract

Legal and accounting reform that strengthens creditor rights, contract enforcement, and accounting practices boosts financial development and accelerates economic growth.

Levine, Loayza, and Beck evaluate:

Whether the level of development of financial intermediaries exerts a casual influence on economic growth.

Whether cross-country differences in legal and accounting systems (such as 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, they find that development of financial intermediaries exerts a large causal impact on growth.

The data also show that cross-country differences in legal and accounting systems help determine differences in financial development.

Together, these findings suggest that legal and accounting reform that strengthens creditor rights, contract enforcement, and accounting practices boosts financial development and accelerates economic growth.

This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to understand the links between the financial system and economic growth. Thorsten Beck may be contacted at tbeck@worldbank.org.

JEL Classification: O16, O40, G28

Suggested Citation

Levine, Ross Eric and Loayza, Norman and Beck, Thorsten, Financial Intermediation and Growth: Causality and Causes (February 1999). World Bank Policy Research Working Paper No. 2059. Available at SSRN: https://ssrn.com/abstract=247793

Ross Eric Levine (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Norman Loayza

World Bank - Research Department ( email )

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

Thorsten Beck

City University London - Sir John Cass 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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