The short-run relationship between the financial system and economic growth: new evidence from regional panels

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Abstract

In this paper, we examine the impact of the financial system on economic growth for a panel of 65 developing countries. The novelty of our paper is that we examine these relationships for various regional panels. Our main findings are that while for the full panel of 65 countries there is evidence of financial sector-led growth, bank credit has a negative effect on economic growth. At the regional level, for the Middle Eastern countries evidence suggests that neither the financial sector nor the banking sector contributes to growth. Except for Asia, the role of financial sector development on economic growth is relatively weak. Finally, except for the Middle Eastern countries, clear evidence is found in favour of bank credit having a statistically significant and negative effect on economic growth.

Original languageEnglish
Pages (from-to)70-78
Number of pages9
JournalInternational Review of Financial Analysis
Volume29
DOIs
Publication statusPublished - Sept 2013
Externally publishedYes

Keywords

  • Bank credit
  • Economic growth
  • Financial system
  • Panel data

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