Reassessing the law, finance, and growth nexus after the recent Great recession

Patrizio Morganti and Giuseppe Garofalo

Journal of Economic Behavior & Organization, 2019, vol. 162, issue C, 229-250

Abstract: The paper provides a reassessment of the relationship between financial structure, financial development, and economic growth conducting cross-section and panel econometric analyses for a sample of 62 countries over 1980–2016. In line with the traditional literature, we confirm the existence of a positive cross-country relationship between the legal system, financial development, and growth even including the experience of the recent Great recession; in addition, when jointly assessing the effect of financial structure and financial development on growth, it emerges that a more bank-oriented economy enjoys higher benefits, in terms of long-run real GDP per capita growth, than a market-oriented one. When we consider variations across countries and over time, we find that both financial structure and financial development affect growth but in an opposite way as the cross-section analysis. In particular, when we control for their joint effect on growth, we observe a positive impact of market-based financial systems, and a negative impact of the overall financial development. We also provide evidence of the existence of a positive and significant relationship between economic growth and Shadow banking during the 2002—2016 period, highlighting the crucial role played by non-bank financial intermediation in complementing traditional banking and in affecting the real economy.

Keywords: Economic growth; Financial structure; Financial development; Legal institutions; Shadow banking (search for similar items in EconPapers)
JEL-codes: E44 G20 K20 O16 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:162:y:2019:i:c:p:229-250

DOI: 10.1016/j.jebo.2018.12.020

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