Finance and growth: Institutional Considerations and Causality

Philip Arestis and Panicos Demetriades

Working Papers from University of East London, Department of Economics

Abstract: This paper re-examines the question of causality between financial development and economic growth. We argue that recent results obtained from cross-section country studies are not able to address this issue satisfactorily. Drawing on the distinction between `bank- based' and `capital-market-based' financial systems and the literature on financial repression we also argue that country specific factors are likely to influence the causal nature of the relationship between financial development and economic growth; as a result this is expected to vary across countries. We conduct cointegration and causality tests using time series data for twelve representative countries which corroborate our analysis.

Keywords: Financial Development; Economic Growth (search for similar items in EconPapers)
JEL-codes: E44 O16 O23 (search for similar items in EconPapers)
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