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Financial Intermediation and Growth: Causality and Causes
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TL;DR: In this article, the authors evaluate whether the level of development of financial intermediaries exerts a casual influence on economic growth, and they find that financial intermediary development has a large causal impact on growth.
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Abstract: Legal and accounting reform that strengthens creditor rights, contract enforcement, and accounting practices boosts financial development and accelerates economic growth. Levine, Loayza, and Beck evaluate: Whether the level of development of financial intermediaries exerts a casual influence on economic growth. Whether cross-country differences in legal and accounting systems (such as creditor rights, contract enforcement, and accounting standards) explain differences in the level of financial development. Using both traditional cross-section, instrumental-variable procedures and recent dynamic panel techniques, they find that development of financial intermediaries exerts a large causal impact on growth. The data also show that cross-country differences in legal and accounting systems help determine differences in financial development. Together, these findings suggest that legal and accounting reform that strengthens creditor rights, contract enforcement, and accounting practices boosts financial development and accelerates economic growth. This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to understand the links between the financial system and economic growth. Thorsten Beck may be contacted at tbeck@worldbank.org.
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Citations
Investor Protection and Corporate Governance
TL;DR: In this article, the authors argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank-centered and market-centered financial systems, and discuss the possible origins of these differences, summarize their consequences, and assess potential strategies of corporate governance reform.
7.2K
A Note on the Theme of Too Many Instruments
TL;DR: In this paper, the authors review the evidence on the effects of instrument proliferation, and describes and simulates simple ways to control it, and illustrate the dangers by replicating two early applications to economic growth: Forbes (2000) on income inequality and Levine, Loayza, and Beck (2000).
•Posted Content
Growth is Good for the Poor
David Dollar,Aart Kraay +1 more
TL;DR: Dollar and Kraay as mentioned in this paper found that the share of income accruing to the bottom quintile does not vary systematically with the average income, and that when average incomes rise, the average incomes of the poorest fifth of society rise proportionately.
3.6K
•Posted Content
Finance and the Sources of Growth
TL;DR: Beck, Levine, and Loayza as mentioned in this paper evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources- total factor productivity growth, physical capital accumulation, and private saving.
3.5K
Chapter 12 Finance and Growth: Theory and Evidence
Ross Levine
- 01 Jan 2005
TL;DR: The authors reviewed, appraises, and critiques theoretical and empirical research on the connections between the operation of the financial system and economic growth, concluding that both financial intermediaries and markets matter for growth and that reverse causality alone is not driving this relationship.
2.4K
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TL;DR: In this article, it was shown that the optimal, incentive-compatible debt contract is the standard debt contract and that the second-best level of investment never exceeds the first-best and is strictly less when there is a positive probability of costly bankruptcy.
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TL;DR: This paper examined the relationship between the legal system and banking development and traces this connection through to long-run rates of per capita GDP growth, capital stock growth, and productivity growth, concluding that countries with a legal system that emphasizes creditor rights and rigorously enforces contracts have better-developed banks than countries where laws do not give a high priority to creditors and where enforcement is lax.
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Financial markets in development, and the development of financial markets
Jeremy Greenwood,Bruce D. Smith +1 more
TL;DR: In this paper, two models with endogenous market formation are presented to analyze the relationship between markets and development, and it is argued that markets promote growth, and that growth in turn encourages the formation of markets.
1.1K
Financial Fragility and Economic Performance
Ben S. Bernanke,Mark Gertler +1 more
TL;DR: The authors argue that financial instability occurs when entrepreneurs who want to undertake investment projects have low net worth; the heavy reliance on external finance that this implies causes the agency costs of investment to be high.
Financial Structure and Aggregate Economic Activity: An Overview
TL;DR: A survey of the literature that explores the possible links between the financial system and aggregate economic behavior can be found in this article, where a survey is presented in two parts: the first reviews the traditional work and the second discusses new research.