Re-examining the effect of financial markets and institutions on economic growth: evidence from the OECD countries

This study re-examines the impact of financial structure on economic growth for 24 advanced OECD countries from 1980 to 2017 using dynamic panel estimators. Previous literature suggests that financial development can promote economic growth; however, recent literature has expressed skepticism toward...

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Bibliographic Details
Published inEconomic change and restructuring Vol. 55; no. 1; pp. 311 - 333
Main Authors Purewal, Kulvinder, Haini, Hazwan
Format Journal Article
LanguageEnglish
Published New York Springer US 01.02.2022
Springer Nature B.V
Subjects
Access
Banking
Development Economics
Economic development
Economic Growth
Economic Policy
Economics
Economics and Finance
Finance
Financial institutions
Financial services
Globalization
Institutions
International Economics
Macroeconomics/Monetary Economics//Financial Economics
Markets
Original Article
Political Economy/Economic Systems
Securities markets
OECD
E44
Economic growth
G00
Financial development
O40
Institutions
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Summary:This study re-examines the impact of financial structure on economic growth for 24 advanced OECD countries from 1980 to 2017 using dynamic panel estimators. Previous literature suggests that financial development can promote economic growth; however, recent literature has expressed skepticism toward the finance-growth nexus. This paper employs financial development indices that capture the multidimensional nature of finance, which considers the accessibility, depth and efficiency of financial markets and institutions, as well as alternative financial development measures such as financial globalisation. The results show that financial markets and financial institutions promote economic growth; however, the effect of financial markets on growth is weaker. Interestingly, the results indicate an inverse U-shaped relationship between overall financial development and economic growth. Equally important, financial globalisation is also positive and significant to growth and indicates a nonlinear relationship. However, the impact of external finance from financial globalisation is weaker compared with overall financial development. Policy implications are discussed.
ISSN:1573-9414
1574-0277
DOI:10.1007/s10644-020-09316-2