Arbeitspapier

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

An endogenous growth model on finance and growth is formulated, and empirical analyses are conducted. The model exhibits structural shifts and breaks caused by institutional changes, 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-linearities that are consistent with the model. Most importantly, we find signs for excessive financial development.

Language
Englisch

Bibliographic citation
Series: KOF Working Papers ; No. 73

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
Cross-country Regressions
Institutions
Non-linearities
Finanzsektor
Entwicklung
Institutionalismus
Neue Wachstumstheorie
Schätzung
Theorie
Welt

Event
Geistige Schöpfung
(who)
Graff, Michael
Karmann, Alexander
Event
Veröffentlichung
(who)
ETH Zurich, KOF Swiss Economic Institute
(where)
Zurich
(when)
2003

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Graff, Michael
  • Karmann, Alexander
  • ETH Zurich, KOF Swiss Economic Institute

Time of origin

  • 2003

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