Finance and the Sources of Growth

38 Pages Posted: 20 Apr 2016

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)

Norman Loayza

World Bank - Research Department

Date Written: February 1999

Abstract

Development of the banking sector exerts a large, causal impact on total factor productivity growth, which in turn causes GDP to grow. Whether banking development has a long-run effect on capital growth or private saving remains to be seen.

Beck, Levine, and Loayza evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources- total factor productivity growth, physical capital accumulation, and private saving.

They use (1) a pure cross-country instrumental variable estimator to extract the exogenous component of banking development and (2) a new panel technique that controls for country-specific effects and endogeneity. They find that:

- Banks do exert a large, causal impact on total factor productivity growth, which feeds through to overall GDP growth. - The long-run links between banking development and both capital growth and private savings are more tenuous.

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.

Suggested Citation

Beck, Thorsten and Levine, Ross Eric and Loayza, Norman, Finance and the Sources of Growth (February 1999). World Bank Policy Research Working Paper No. 2057. Available at SSRN: https://ssrn.com/abstract=569227

Thorsten Beck

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

Norman Loayza

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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