The Finance-Growth Thesis: A Sceptical Assessment

Journal of African Economies 21(suppl_1):88-88. DOI: 10.1093/jae/ejr040

Posted: 13 Dec 2014

See all articles by Finn Tarp

Finn Tarp

University of Copenhagen - Department of Economics

Thomas Barnebeck Andersen

University of Southern Denmark - Department of Business and Economics

Sam Jones

University of Copenhagen - Department of Economics

Date Written: December 1, 2011

Abstract

Financial liberalisation is widely seen as key to promoting financial development and unlocking growth in developing countries. While this thesis has been backed by an extensive literature, we show that it rests on weak theoretical and empirical foundations. Data for Sub-Saharan Africa reinforce this sceptical assessment. The region has embraced the financial reform paradigm, but few robust positive results have followed. On the contrary, exploratory data analysis suggests that, to the extent that financial reform has made any contribution to developmental outcomes, domestic financial development is unlikely to have been the mediating channel. We conclude that the finance-growth thesis stands challenged and outline five lessons which future research should heed.

Suggested Citation

Tarp, Finn and Andersen, Thomas Barnebeck and Jones, Sam, The Finance-Growth Thesis: A Sceptical Assessment (December 1, 2011). Journal of African Economies 21(suppl_1):88-88. DOI: 10.1093/jae/ejr040, Available at SSRN: https://ssrn.com/abstract=2537333

Finn Tarp (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Thomas Barnebeck Andersen

University of Southern Denmark - Department of Business and Economics ( email )

Campusvej 55
DK-5230 Odense, 5000
Denmark

Sam Jones

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

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