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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26077
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| Title: | What is happening to the impact of financial deepening on economic growth? |
| Authors: | Wachtel, Paul
Rousseau, Peter L. |
| Keywords: | finance-growth nexus
rolling regression
robustness
cross-country growth |
| Issue Date: | 9-Jan-2007 |
| Series/Report no.: | EC-06-15 |
| Abstract: | Although the finance-growth relationship is now firmly entrenched in the
empirical literature, we show that it is not as strong in more recent
data as it was in the original studies with data for the period from
1960 to 1989. We consider two related explanations. First, excessive
financial deepening or too rapid growth of credit may have led to both
inflation and weakened banking systems which in turn gave rise to
growthinhibiting financial crises. Second, excessive financial deepening
may be a result of widespread financial liberalizations in the late
1980s and early 1990s in countries that lacked the legal or regulatory
infrastructure to exploit financial development successfully. We find
that the increased incidence of financial crises since the 1990s is
primarily responsible for the recent weakening of the finance-growth
link, but find no direct evidence that liberalizations played an
important supporting role. |
| URI: | http://hdl.handle.net/2451/26077 |
| Appears in Collections: | Economics Working Papers
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