Re-Examining the Impact of Financial System on Economic Growth

Abstract

Recent developments in panel data econometrics allow researchers to estimate heterogeneous parameters. Given this novelty, the goal of this paper is to revisit the financial development-economic growth nexus for a panel of 76 developing counties using recent heterogeneous panel time series estimation methods. Findings indicate that results are very volatile across different empirical specifications. Overall, results provide a strong support of a negative impact that banking development on growth. At regional level, however, there is relatively little evidence of such relationship. On the side of the stock market, there is no much indication in favor of stock market-led growth hypothesis either at pooled panel or at regional level.