What matters in the finance–growth nexus of advanced economies? Evidence from OECD countries

Marc Steffen Rapp and Iuliia A. Udoieva

Applied Economics, 2018, vol. 50, issue 6, 676-690

Abstract: Over the last decades, a large strand of finance and growth literature has provided ample evidence on the importance of financial deepening for economic development. Yet, recently, the focus of public debate has shifted towards the role of the financial system structure, an area in which empirical research remains relatively sparse and exploratory in nature. With this article, we aim to contribute to that debate by analysing the role the financial system structure plays in economic growth and risk. Focusing on stock markets and studying OECD economies over 1994–2013, we find that, ceteris paribus, financial systems with relatively larger stock markets facilitate economic growth and dampen economic risk. Our findings remain robust under application of instrumental variable and system generalized method of moments estimators, as well as when we use an alternative definition of stock market development, estimate median regressions, examine relatively high-frequency annual data, control for systemic banking crises or apply quadratic specifications. We find no such effect for private bond markets or private credit volume. Overall, our results suggest that financial system structure matters for the economic development of advanced economies and highlight the importance of a debate about the optimal structure of an economy’s financial system.

Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2017.1337867 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:50:y:2018:i:6:p:676-690

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2017.1337867

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().