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The Role of Financial Development in Growth and Investment

Abstract

Thisarticle decomposes the well-documented relationship between financialdevelopment and growth. We examine whether financial developmentaffects growth solely through its contribution to growth in ``primitives'' or factor accumulation rates or whether it alsohas a positive impact on total factor productivity growth. Ourresults suggest that indicators of financial development arecorrelated with both total factor productivity growth and investment.However, the indicators that are correlated with total factorproductivity growth differ from those that encourage investment.In addition, many of the results are sensitive to the inclusionof country fixed effects, which may indicate that the financialdevelopment indicators are proxying for broader country characteristics.

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Benhabib, J., Spiegel, M.M. The Role of Financial Development in Growth and Investment. Journal of Economic Growth 5, 341–360 (2000). https://doi.org/10.1023/A:1026599402490

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  • growth
  • investment
  • human capital
  • financial development