Working Paper: NBER ID: w10766
Authors: Ross Levine
Abstract: This paper reviews, appraises, and critiques theoretical and empirical research on the connections between the operation of the financial system and economic growth. While subject to ample qualifications and countervailing views, the preponderance of evidence suggests that both financial intermediaries and markets matter for growth and that reverse causality alone is not driving this relationship. Furthermore, theory and evidence imply that better developed financial systems ease external financing constraints facing firms, which illuminates one mechanism through which financial development influences economic growth. The paper highlights many areas needing additional research.
Keywords: No keywords provided
JEL Codes: G0; O0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial development (O16) | economic growth (O49) |
| better developed financial systems (P34) | ease external financing constraints (F34) |
| ease external financing constraints (F34) | influence economic growth (O00) |
| financial systems improve resource allocation (O16) | affect savings, investment decisions, and technological innovation (O16) |
| financial development (O16) | influence savings and investment decisions (G11) |