What determines the finance-growth nexus? An endogenous growth model and empirical evidence

Arbeitspapier

An endogenous growth model with a financial sector is formulated, and empirical analyses are conducted. The model exhibits structural shifts and breaks caused by institutional change, suggesting that a linear approach is inadequate. To address this point empirically, we fit data for 90 countries from 1960-2000 to a standard growth equation with a proxy for financial activity. Firstly, it is shown that a growth enhancing outcome of financial activity is contingent on a sound institutional framework. Then, we order the sample by control variables which follow from the model as potential causes of breaks in the adjustment process. Threshold regressions reveal non-linearity that is consistent with the model. Most importantly, we find signs for excessive financial activity.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Dresden Discussion Paper Series in Economics ; No. 15/03

Classification and Topics

• Classification: Wirtschaft ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance ; Monetary Growth Models ; Comparative Studies of Countries
• Subject: Financial Development ; Endogenous Growth ; Institutions ; Non-linearities ; Finanzsektor ; Entwicklung ; Institutionalismus ; Neue Wachstumstheorie ; Schätzung ; Theorie ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Graff, Michael ; Karmann, Alexander
• Event: Veröffentlichung
• (who): Technische Universität Dresden, Fakultät Wirtschaftswissenschaften
• (where): Dresden
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/48136
• Last update: 10.03.2025, 11:44 AM CET