Financial Development and Economic Growth: A Study for OECD Countries in the Context of Crisis

Abstract

We revisit the relationship between economic growth and financial development in OECD countries during the period 1990-2016, paying special attention to the recent economic crisis. Using a random effects model, we find that an increase in domestic credit provided by the financial-sector, in market capitalization and in the turnover ratio of domestic shares entails a significant positive effect on per capita GDP. We also find different effects during the period of the crisis on domestic credit provided by the financial-sector and on market capitalization. Among other socioeconomic determinants related to economic growth, expenditure in education, inflation and unemployment rates appear highly significant for economic growth of the analysed countries.

Keywords: Financial Development, Economic Growth, Panel Data, Random Effects Model

JEL Classification: G0, O1, O47