Financial development and economic growth in developing countries

P.J. Dawson
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P.J. Dawson: School of Agriculture, Food and Rural Development, Newcastle University, Newcastle upon Tyne NE1 7RU, UK

Progress in Development Studies, 2008, vol. 8, issue 4, 325-331

Abstract: The hypothesis that financial development promotes economic growth in developing countries is largely supported by empirical studies, though contrary evidence also exists. This relationship is re-examined using annual panel data for 44 developing countries for 1974–2001. Three sources-of-growth equations, which are specified from aggregate production functions, are estimated: two are theoretically consistent, while the third uses a common proxy (DEPTH) for financial development. Results show conflicting evidence: the theoretically consistent models show a positive and statistically significant relationship between financial development and economic growth, whereas the proxy version shows the opposite. Measuring financial development appropriately appears critical for policy advice

Keywords: financial development; economic growth; developing countries; panel data (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:sae:prodev:v:8:y:2008:i:4:p:325-331

DOI: 10.1177/146499340800800402

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