How Does the Various Sectors of the Financial Market Influence Growth Around the Globe?
34 Pages Posted: 17 Jun 2020
Date Written: March 11, 2020
We explore the links between financial markets, institutional quality and economic growth. We document that the unconditional effect of finance on growth is ambiguous. This variation is caused by regional bloc, income level and legal origin differences. Our results suggest that, for financial development (banking sector, insurance sector, stock market) to elicit positive effect on growth, there needs to be an effective institutional framework in place. However, in cases where finance in itself elicits positive effect on growth, further tightening of the institutional framework could be harmful to growth; hence, must be done with caution. Policy implications are discussed.
Keywords: Bank profitability; Europe & Central Asia; Latin America and the Caribbean; Middle East & North Africa; Sub-Saharan African; East Asian & Pacific
JEL Classification: D53, E42, N2, G21, G22, O43
Suggested Citation: Suggested Citation