Financial development and economic growth: The role of stock markets and banks

This paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 0551–9115 and applying recent generalized-method-of moments techniques developed for dynamic panels. we examine whether measures of stock market and bank development each have a positive relationship with economic growth after (i) controlling for simultaneity bias, omitted variable bias, and the routine inclusion of lagged dependent variables in growth regressions, omitted variable bias, and the routine inclusion of lagged dependent variables in growth regressions, (ii) moving to data averaged over five-years, instead of quarterly or annual data, to abstract from business-cycle influences. After controlling for country-specific effects and potential endogeneity, the data are not consistent with theories that emphasize an important positive role for financial development in the process of economic growth. Bank credit has an important positive role for process of economic growth and stock development cannot play this role for economic growth. This paper also assessed the dependent impact of both stock market development and bank development on economic growth.On balance, we find that stock markets and banks influence economic growth but this is not always positive. For bank is positive and strong but stock market weak and negative

کلیدواژه ها:

Economic growth ، Stock markets ، Banks ، Panel data