Joseph Schumpeter argued in 1911 that the services provided by financial intermediaries - mobilizing savings, evaluating projects, managing risk, monitoring managers, and facilitating transactions -stimulate technological innovation and economic development. The authors present evidence that supports this view. Examining a cross-section of about 80 countries for the period 1960-89, they find that various measures of financial development are strongly associated with both current and later rates of economic growth. Each measure has shortcomings but all tell the same story: finance matters. They present three main findings, which are robust to many specification tests: The average level of financial development for 1960-89 is very strongly associated with growth for the period. Financial development precedes growth. For example, financial depth in 1960 (the ratio of broad money to GDP) is positively and significantly related to real per capita GDP growth over the next 30 years even after controlling for a variety of country-specific characteristics and policy indicators. Financial development is positively associated with both investment rate and the efficiency with which economies use capital. Much work remains to be done, but the data are consistent with Schumpeter's view that the services provided by financial intermediaries stimulate long-run growth.

/pdf/finance-and-growth-schumpeter-might-be-right-2yxha5ldj4.pdf

Finance and Growth: Schumpeter Might Be Right

https://www.nber.org/system/files/working_papers/w5057/w5057.pdf

How does foreign direct investment affect economic growth

The role of human capital in economic development Evidence from aggregate cross-country data

A panel data approach is advocated and implemented for studying growth convergence. The familiar equation for testing convergence is reformulated as a dynamic panel data model, and different panel data estimators are used to estimate it. The main usefulness of the panel approach lies in its ability to allow for differences in the aggregate production function across economies. This leads to results that are significantly different from those obtained from single cross-country regressions. In the process of identifying the individual "country effect," we can also see the point where neoclassical growth empirics meets development economics.

https://www.jstor.org/stable/pdf/2946651.pdf

Growth Empirics: A Panel Data Approach

https://www.nber.org/system/files/working_papers/w4486/w4486.pdf

Income distribution, political instability, and investment

This paper generalizes the Nelson-Phelps catch-up model of technology diffusion. We allow for the possibility that the pattern of technology difusion can be exponential, which would predict that nations would exhibit positive catch-up with the leader nation, or logistic, in which a country with a sufficiently small capital stock may exhibit slower total factor productivity growth than the leader nation. We derive a nonlinear specification for total factor productivity growth that nests these two specifications. We estimate this specification for a cross-section of nations from 1960 through 1995. Our results support the logistic specification, and are robust to a number of sensitivity checks. Our model also appears to predict slow total factor productivity growth well. 22 of the 27 nations that we identify as lacking the critical human capital levels needed to achieve faster total factor productivity growth than the leader nation in 1960 did achieve lower growth over the next 35 years.

/pdf/human-capital-and-technology-diffusion-4u6z1jeed3.pdf

Human Capital and Technology Diffusion

Thisarticle decomposes the well-documented relationship between financialdevelopment and growth. We examine whether financial developmentaffects growth solely through its contribution to growth in ``primitives'' or factor accumulation rates or whether it alsohas a positive impact on total factor productivity growth. Ourresults suggest that indicators of financial development arecorrelated with both total factor productivity growth and investment.However, the indicators that are correlated with total factorproductivity growth differ from those that encourage investment.In addition, many of the results are sensitive to the inclusionof country fixed effects, which may indicate that the financialdevelopment indicators are proxying for broader country characteristics.

https://www.jstor.org/stable/pdfplus/40215899.pdf

The Role of Financial Development in Growth and Investment

This paper generalizes the Nelson-Phelps catch-up model of technology diffusion. We allow for the possibility that the pattern of technology diffusion can be exponential, which would predict that nations would exhibit positive catch-up with the leader nation, or logistic, in which a country with a sufficiently small capital stock may exhibit slower total factor productivity growth than the leader nation.We derive a nonlinear specification for total factor productivity growth that nests these two specifications. We estimate this specification for a cross-section of nations from 1960 through 1995. Our results support the logistic specification, and are robust to a number of sensitivity checks.Our model also appears to predict slow total factor productivity growth well. 22 of the 27 nations that we identify as lacking the critical human capital levels needed to achieve faster total factor productivity growth than the leader nation in 1960 did achieve lower growth over the next 35 years.

/pdf/human-capital-and-technology-diffusion-3j1pd7k6ar.pdf

We update Rose and Spiegel (2009a, b) and search for simple quantitative models of macroeconomic and financial indicators of the "Great Recession" of 2008-09. We use a cross-country approach and examine a number of potential causes that have been found to be successful indicators of crisis intensity by other scholars. We check a number of different indicators of crisis intensity, and a variety of different country samples. While countries with higher income seemed to suffer worse crises, we find few clear reliable indicators in the pre-crisis data of the incidence of the Great Recession. Countries with current account surpluses seemed better insulated from slowdowns.

Mark M. Spiegel

Papers

The role of human capital in economic development Evidence from aggregate cross-country data

Human Capital and Technology Diffusion

The Role of Financial Development in Growth and Investment

Human Capital and Technology Diffusion

Cross-Country Causes and Consequences of the Crisis: An Update