Financial intermediation and growth: Causality and causes

This paper evaluates (1) whether the exogenous component of financial intermediary development influences economic growth and (2) whether cross-country differences in legal and accounting systems (e.g., creditor rights, contract enforcement, and accounting standards) explain differences in the level...

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Bibliographic Details
Published in:Journal of monetary economics 2000-08, Vol.46 (1), p.31-77
Main Authors: Levine, Ross, Loayza, Norman, Beck, Thorsten
Format: Article
Language:English
Subjects:
Accounting
Causality
Economic growth
Economic theory
Finance
Financial development
Financial economics
Financial institutions
Law
Legal system
Legal systems
Monetary economics
Studies
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Summary:This paper evaluates (1) whether the exogenous component of financial intermediary development influences economic growth and (2) whether cross-country differences in legal and accounting systems (e.g., creditor rights, contract enforcement, and accounting standards) explain differences in the level of financial development. Using both traditional cross-section, instrumental variable procedures and recent dynamic panel techniques, we find that the exogenous components of financial intermediary development is positively associated with economic growth. Also, the data show that cross-country differences in legal and accounting systems help account for differences in financial development. Together, these findings suggest that legal and accounting reforms that strengthen creditor rights, contract enforcement, and accounting practices can boost financial development and accelerate economic growth.
ISSN:0304-3932
1873-1295
DOI:10.1016/S0304-3932(00)00017-9