Does Financial Structure Matter?

Levy Economics Institute Working Paper No. 399

30 Pages Posted: 20 Jan 2004

See all articles by Philip Arestis

Philip Arestis

University of Cambridge - Department of Land Economy; Universidad del País Vasco (UPV/EHU)

Ambika D. Luintel

London South Bank University - Business School

Kul B. Luintel

Brunel University London - Economics and Finance

Date Written: January 2004

Abstract

We address the issue of whether financial structure influences economic growth. Three competing views of financial structure exist in the literature: the bank-based, the market-based and the financial services view. Recent empirical studies examine their relevance by utilizing panel and cross-section approaches. This paper, for the first time ever, utilizes time series data and methods, along with the Dynamic Heterogeneous Panel approach, on developing countries. We find significant cross-country heterogeneity in the dynamics of financial structure and economic growth, and conclude that it is invalid to pool data across our sample countries. We find significant effects of financial structure on real per capita output, which is in sharp contrast to some recent findings. Panel estimates, in most cases, do not correspond to country-specific estimates, and hence may proffer incorrect inferences for several countries of the panel.

Keywords: Financial structure, economic development, vector error-correlation model, dynamic heterogeneous panels

JEL Classification: O16, G18, G28

Suggested Citation

Arestis, Philip and Luintel, Ambika D. and Luintel, Kul B., Does Financial Structure Matter? (January 2004). Levy Economics Institute Working Paper No. 399. Available at SSRN: https://ssrn.com/abstract=488284 or http://dx.doi.org/10.2139/ssrn.488284

Philip Arestis (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Universidad del País Vasco (UPV/EHU)

Barrio Sarriena s/n
Leioa, Bizkaia 48940
Spain

Ambika D. Luintel

London South Bank University - Business School ( email )

103 Borough Road
London, Greater London SE1 OAA
United Kingdom

Kul B. Luintel

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

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