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Finance and Growth: Theory and Evidence

Ross Levine ()

Chapter 12 in Handbook of Economic Growth, 2005, vol. 1, Part A, pp 865-934 from Elsevier

Abstract: This paper reviews, appraises, and critiques theoretical and empirical research on the connections between the operation of the financial system and economic growth. While subject to ample qualifications and countervailing views, the preponderance of evidence suggests that both financial intermediaries and markets matter for growth and that reverse causality alone is not driving this relationship. Furthermore, theory and evidence imply that better developed financial systems ease external financing constraints facing firms, which illuminates one mechanism through which financial development influences economic growth. The paper highlights many areas needing additional research.

JEL-codes: O0 (search for similar items in EconPapers)
Date: 2005
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