tailieunhanh - Review of literature on finance-growth Nexus

This study discusses the current state of knowledge on the financial development and economic growth by reviewing the most decisive theoretical and empirical contributions. It is obvious that financial development is at least correlated with economic development and that a sound and refined financial system encourages the efficiency of investment and economic growth in a market economy. It is also observable that an inadequately functioning financial system can obstruct economic growth and development. The review highlights that most empirical studies focus on either testing the role of financial development in motivating economic growth or tentative direction of causality between these two variables. We review the cross-country and time series empirical literature in this study. It is evident that searching the relationship between financial development and economic growth is inconclusive across countries, regions, and methodologies employed. | Journal of Applied Finance Banking vol. 5 no. 4 2015 175-195 ISSN 1792-6580 print version 1792-6599 online Scienpress Ltd 2015 Review of Literature on Finance-Growth Nexus Najia Saqib1 Abstract This study discusses the current state of knowledge on the financial development and economic growth by reviewing the most decisive theoretical and empirical contributions. It is obvious that financial development is at least correlated with economic development and that a sound and refined financial system encourages the efficiency of investment and economic growth in a market economy. It is also observable that an inadequately functioning financial system can obstruct economic growth and development. The review highlights that most empirical studies focus on either testing the role of financial development in motivating economic growth or tentative direction of causality between these two variables. We review the cross-country and time series empirical literature in this study. It is evident that searching the relationship between financial development and economic growth is inconclusive across countries regions and methodologies employed. JEL classification numbers E44 G21 O16. Keywords Financial Sector Financial Institutions Economic Development. 1 Introduction The origin of the financial development concept goes back to the early work of Gurley and Shaw 1967 . They investigate the evolution of the financial structure during economic growth and argue that financial development is a positive function of real wealth. As countries grow in terms of income and wealth their financial structures tend to become more sophisticated in terms of institutions and financial assets available. During economic development as their incomes per capita increases countries usually experience more rapid growth in financial assets than in national wealth or national product. Financial growth in excess of real growth is apparently a common phenomenon 1Assistant Professor of Economics Business .