Finance and the Sources of Growth

Posted: 31 Jan 2001

See all articles by Thorsten Beck

Thorsten Beck

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

Ross Levine

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

Norman Loayza

World Bank - Research Department

Abstract

This paper evaluates the empirical relationship between the level of financial intermediary development and (i) economic growth, (ii) total factor productivity growth, (iii) physical capital accumulation, and (iv) private saving rates. We use (a) a pure cross-country instrumental variable estimator to extract the exogenous component of financial intermediary development, and (b) a new panel technique that controls for biases associated to simultaneity and unobserved country-specific effects. After controlling for these potential biases, we find that (1) financial intermediaries exert a large, positive impact on total factor productivity growth, which feeds through to overall GDP growth; and (2) the long-run links between financial intermediary development and both physical capital growth and private saving rates are tenuous.

Keywords: Growth, Financial Intermediation

JEL Classification: o16, o40, g28

Suggested Citation

Beck, Thorsten and Levine, Ross Eric and Loayza, Norman, Finance and the Sources of Growth. Journal of Financial Economics, Vol. 58, No. 1-2, Pp. 261-300, January 2000. Available at SSRN: https://ssrn.com/abstract=249039

Thorsten Beck (Contact Author)

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

Ross Eric Levine

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

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