Abstract
The finance-growth nexus is a classic source of debate among economists. This paper offers regional evidence on this issue in order to determine whether it can fit the data on a 147-year-old economic union, Italy. By means of this approach the pooling of developed and developing countries in the same sample can be avoided. Both cross-sectional and panel data estimates appear to show that more finance generates more growth. Endogeneity does not bias the results to a significant extent, and the finance-growth nexus is robust to spatial unobserved heterogeneity. Spatial correlation in the residuals is rejected by the data. Economic growth appears to be favoured more by short-term than by long-term credit.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Anselin L (1988) Spatial econometrics: methods and models. Kluwer, Dordrecht
Anselin L, Kelejian HK (1997) Testing for spatial error autocorrelation in the presence of endogenous regressors. Int Reg Sci Rev 20:153–182
Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to an employment equation. Rev Econ Stud 58:153–182
Baltagi BH (2003) Econometric analysis of panel data. Wiley, New York
Becattini G, Pyke F, Sengenberger W (eds) (1992) Industrial districts and inter-firm co-operation in Italy. International Institute for Labour Studies, Geneva
Beck T, Levine R (2004) Stock markets, banks and growth: panel evidence. J Bank Finance 28:423–442
Beck T, Levine R, Loayza N (2000) Finance and the sources of growth. J Financial Econ 58:261–300
Blundell R, Bond S (1998) Initial conditions and moment restrictions in dynamic panel data models. J Econometr 87:115–143
Caprio G Jr, Demirgüç-Kunt A (1997) The role of long-term finance. Policy Research Working Paper 1746, The World Bank
Caselli F, Esquivel G, Lefort F (1996) Reopening the convergence debate: a new look at cross-country growth empirics. J Econ Growth 1:363–389
Davis P (2001) Estimating multi-way error components models with unbalanced data structures using instrumental variables. J Econometr 106:67–95
de la Fuente A (2002) On the Sources of Economic Convergence: A Close Look at the Spanish Regions. Euro Econ Rev 46:569–599
Diamond DW (1991) Financial Intermediation and Delegated Monitoring. Rev Econ Studies 51:393–414
Driffil J (2003) Growth and Finance. Manchester Sch 71:363–380
Goldsmith RW (1969) Financial structure and development. Yale University Press, New Haven
Guiso L, Sapienza P, Zingales L (2004a) Does local financial development matter?. Quar J Econ 119:929–969
Guiso L, Sapienza P, Zingales L (2004b) The role of social capital in financial development. Am Econ Rev 94:526–556
Guiso L, Sapienza P, Zingales L (2006) The cost of banking regulation. NBER Working Paper 12501
Islam N (1995) Growth empirics: a panel data approach. Quar J Econ 4:1127–1170
Kahn S, Senhadji A (2001) Threshold effects in the relationship between inflation and growth. IMF Staff Pap 48:1–21
King RG, Levine R (1993a) Finance and growth: schumpeter might be right. Quar J Econ 108:717–737
King RG, Levine R (1993b) Finance, entrepreneurship, and growth. J Monetary Econ 32:513–542
King RG, Levine R (1993c) Financial intermediation and economic development. In: Mayer C, Vives X (eds) Financial intermediation in the construction of Europe. CEPR, London, pp 156–189
La Porta R, Lopez-de-Silanes F, Shleifer A, Vishny RW (1998) Law and finance. J Polit Econ 106:1113–1155
Levine R (1998) The legal environment, banks, and long-run economic growth. J Money Credit Bank 30:596–613
Levine R (1999) Law, Finance, and Economic Growth. J Financ Intermed 8:36–67
Levine R (2004) Finance and growth: theory and evidence. NBER Working Paper 10766
Levine R, Renelt D (1992) A sensitivity analysis of cross-country growth regressions. Am Econ Rev 82:942–963
Levine R, Zervos S (1998) Stock markets, banks and economic growth. Am Econ Rev 88:537–558
Levine R, Loayza N, Beck T (2000) Financial intermediation and growth: causality and causes. J Monetary Econ 46:31–77
Loayza N, Ranciere R (2004) Financial fragility, financial development, and growth. Policy Research Working Paper Series 3431, The World Bank
Manning MJ (2003) Finance causes growth: can we be so sure? Contributions to Macroeconomics 3
Observatory of European SMEs (2003a) Highlights from the 2003 Observatory. European Communities, Office for Official Publications of the European Communities, Luxembourg
Observatory of European SMEs (2003b) SMEs in Europe. European Communities, Office for Official Publications of the European Communities, Luxembourg
Rajan R, Zingales L (1998) Financial dependence and growth. Am Econ Rev 88:559–586
Roodman D (2005) xtabond2: Stata module to extend xtabond dynamic panel data estimator. Center for Global Development, Washington, http://econpapers.repec.org/software/bocbocode/s435901.htm
Schiavo S, Vaona A (2007) Poolability and the finance-growth nexus: a cautionary note. Econ Lett (in press)
Usai S, Vannini M (2005) Banking structure and regional economic growth: lessons from Italy. Ann Reg Sci 39:691–714
Vaona A (2006) Regional evidence on financial development, finance term structure and growth. Kiel Institute for the World Economy, Kiel Working Paper 1285
Vaona A, Schiavo S (2007) Nonparametric and semiparametric evidence on the long-run effects of inflation on growth. Econ Lett 94:452–458
Windmeijer F (2005) A finite sample correction for the variance of linear efficient two-step GMM estimators. J Econometr 126:25–51
Wooldridge JM (2001) Econometric analysis of cross section and panel data. The MIT Press, Cambridge
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Vaona, A. Regional evidence on financial development, finance term structure and growth. Empirical Economics 34, 185–201 (2008). https://doi.org/10.1007/s00181-007-0153-2
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00181-007-0153-2