relationship. All subsequent studies confirmed it (see for example King and Levine, 1993, and the review in: Pagano, 1993). Goldsmith used a sample of 35 countries for the period between 1860 and 1963 to show the relationship between income and financial depth measured by the ratio between bank's assets and GDP. He also showed that in periods of rapid growth, financial depth grows faster than income. More details about measuring financial depth can be found in this paper. FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH Velimir Šonje

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Financial development and economic growth

Why do growth rates differ? This paper surveys the recent empirical literature on economic growth, starting with a discussion of stylized facts, data problems, and statistical methods. Six research questions are emphasized, drawing on growth and convergence research. In answering these questions, the paper argues that efficiency has grown at different rates across countries, casting doubt on neoclassical models in which technology is a public good. The latter half of the paper rounds up a variety of findings before providing answers to all six questions, including a short summary of how differences in growth rates arise.

The New Growth Evidence

This article re-examines the finance-growth nexus in China using principal components analysis and ARDL bounds testing approach to cointegration. The results suggest that principal components have an effective role in examining the links between growth and financial development and, that financial development fosters economic growth.

Finance-growth nexus in China revisited: New evidence from principal components and ARDL bounds tests

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Banks And Politics In America From The Revolution To The Civil War

An International Look at the Growth of Modern Finance

This thesis attempts to provide empirical evidence for the hotly debated relationship between financial development and economic performance using a variety of time series and panel data methods. Also, it extends the previous finance-growth literature by examining the role of democracy in the process. Three inter-related studies form the work undertaken. Chapter 2: In the first of these the impact of financial development on growth is investigated for the case of China using a range of time-series techniques. The results from this work - which spans almost five decades from 1952 - uncover a bi-directional causality between the country’s output performance and its financial development. Meanwhile, domestic financial development failed to promote China’s long-term economic performance over the period under investigation. These findings are inconsistent with the previous studies of Hao (2006) and Liang and Teng (2006). Here, the failure of financial development to stimulating the long-term growth is attributed to the issues of majority government ownership and the high volume of non-performing loans in the domestic financial system. Chapter 3: The relationship between domestic financial development and economic growth has been on the agenda of growth economics for a long time. Notwithstanding its hypothesized benefits certain studies have uncovered evidence of the detrimental effect of domestic financial development for the long-term growth prospects. Such findings highlighted the importance of institutional conditions of financial development. With a panel of 171 countries worldwide over the period 1960 to 2014, this study presents an examination of the question of whether the existence of sound democratic institutions is necessary for financial development to stimulate economic growth in these countries. The baseline results show that financial sector development per se has the capacity of exerting a significantly positive impact on domestic economic growth. However, little evidence of any significant effect of democracy on growth is observed. Meanwhile, the results suggest that the positive effect of financial development on economic growth does not require the condition of the existence of democratic institutions. The study conjectures that, for policymakers, improving the domestic financial system can contribute growth, even in the absence of sound democratic institutions. Chapter 4: This research provides a re-examination of the long-term effect of financial development on economic growth using annual data for 67 countries from 1971 to 2007. Autoregressive distributed lag (ARDL) and cross-sectionally augmented autoregressive distributed lag (CS-ARDL) models have been applied to confront cross-country heterogeneity and error cross-country dependence. A positive and significant effect of financial development on the long-run per capita output is observed. Typically, such a beneficial impact is largely driven by nondemocratic countries. Also, some evidence of a nonlinear effect of financial development is revealed in this study.

Zhenxiong Li

Papers

Essays on financial development and economic performance