Stock Markets, Banks, and Growth: Correlation or Causality

24 Pages Posted: 30 Jul 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)

Date Written: September 2001

Abstract

Analysis of a panel data set for 1976-1998 shows that on balance stock markets and banks positively influence economic growth - findings that do not result from biases induced by simultaneity, omitted variables, or unobserved country-specific effects.

Beck and Levine investigate the impact of stock markets and banks on economic growth using a panel data set for 1976-1998 and applying recent generalized method of moments (GMM) techniques developed for dynamic panels. The authors illustrate econometrically the differences that emerge from different panel procedures. On balance, stock markets and banks positively influence economic growth - and these findings are not a result of biases induced by simultaneity, omitted variables, or unobserved country-specific effects.

This paper - a product of Finance, Development Research Group - is part of a larger effort in the group to understand the links between the financial system and economic growth. The authors may be contacted at tbeck@worldbank.org or rlevine@csom.umn.edu.

JEL Classification: G15, G21, O16,

Suggested Citation

Beck, Thorsten and Levine, Ross Eric, Stock Markets, Banks, and Growth: Correlation or Causality (September 2001). World Bank Policy Research Working Paper No. 2670; Carlson School of Management Working Paper. Available at SSRN: https://ssrn.com/abstract=276882

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

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