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Recovering the finance-growth nexus

Panicos Demetriades () and Johan Rewilak

Economics Letters, 2020, vol. 196, issue C

Abstract: We show that the finance-growth nexus can be recovered by using quality adjusted measures of financial development. Specifically, we utilize three World Bank financial fragility indicators – the Z-score, a measure of liquidity and a measure of impaired loans – to construct quality adjusted measures of private credit to GDP. Our findings suggest that the finance-growth nexus is alive and kicking, as long as banks use sound lending practices to prevent the buildup of non-performing loans. We also show that our results hold in Sub-Saharan Africa — a region where the finance-growth nexus could potentially make a big difference

Keywords: Growth; Financial development; Credit; Financial fragility; Financial resilience; Non-performing loans; Sub-Saharan Africa (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 O11 O16 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.econlet.2020.109563

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