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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: KOF Working Papers ; No. 73

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 ; Cross-country Regressions ; 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): ETH Zurich, KOF Swiss Economic Institute
• (where): Zurich
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/50832
• Last update: 10.03.2025, 11:44 AM CET