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Financial Development and Economic Growth
Author:
Mr. Pablo Emilio Guidottinull

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Mr. Jose De Gregorionull

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Series:
IMF Working Papers
Volume/Issue:
Volume 1992: Issue 101
Language:
English
Publication Date:
01 Dec 1992
DOI:
https://doi.org/10.5089/9781451852455.001
ISBN:
9781451852455
ISSN:
1018-5941
Pages:
37
Keywords:
WP; financial system; high-productivity state of nature; private sector; savings rate; investment rate; PPP investment deflator; efficiency of investment; representative bank; Real interest rates; Financial sector development; Credit; Capital productivity; Monetary aggregates; Eastern Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper examines the empirical relationship between long–run growth and the degree of financial development, proxied by the ratio of bank credit to the private sector as a fraction of GDP. We find that this proxy enters significantly and with a positive sign in growth regressions on a large cross–country sample, but with a negative sign using panel data for Latin America. Our findings suggest that the main channel of transmission from financial development to growth is the efficiency of investment, rather than its volume. We also present a model where the negative correlation between financial intermediation and growth results from financial liberalization in a poor regulatory environment.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 1992: Issue 101