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The econometrics of finance and growth

Thorsten Beck

No 4608, Policy Research Working Paper Series from The World Bank

Abstract: This paper reviews different econometric methodologies to assess the relationship between financial development and growth. It illustrates the identification problem, which is at the center of the finance and growth literature, using the example of a simple Ordinary Least Squares estimation. It discusses cross-sectional and panel instrumental variable approaches to overcome the identification problem. It presents the time-series approach, which focuses on the forecast capacity of financial development for future growth rates, and differences-in-differences techniques that try to overcome the identification problem by assessing the differential effect of financial sector development across states with different policies or across industries with different needs for external finance. Finally, it discusses firm-level and household approaches that allow analysts to dig deeper into the channels and mechanisms through which financial development enhances growth and welfare, but pose their own methodological challenges.

Keywords: Access to Finance; Achieving Shared Growth; Economic Theory&Research; Debt Markets; Statistical&Mathematical Sciences (search for similar items in EconPapers)
Date: 2008-04-01
New Economics Papers: this item is included in nep-dev, nep-ecm and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (62)

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Related works:
Chapter: The Econometrics of Finance and Growth (2009)
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