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The finance-specialization-growth nexus: evidence from OECD countries

Franz Hahn

Applied Financial Economics, 2008, vol. 18, issue 4, 255-265

Abstract: Empirical evidence is increasing by emphasizing the positive influence of financial markets on the level and the rate of growth of a country's per-capita income. Theoretically, the rationale for the finance-growth nexus appears to be straightforward: in imperfect economies, financial markets provide valuable services such as mobilizing savings, diversifying risks, allocating savings to investments and monitoring the allocation of managers. By performing these services financial markets work as a very important catalyst of economic growth. Empirical research has so far paid little attention to the mechanisms through which financial development is related to growth. Using a panel data set covering 22 OECD countries over the period 1970 through 2000, we present empirical evidence which suggest that the finance-growth nexus in industrialized countries is due to a higher degree of specialization made possible by financial advancement.

Date: 2008
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DOI: 10.1080/09603100600827646

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