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Financial Intermediation and Growth: Causality and Causes

Authors:Thorsten Beck , Norman V. Loayza  and Ross Eric Levine
Web Address:Macroeconomics and Growth
Topics:Financial Sector and Macroeconomic & Economic Growth
Report Number:wps2059
Citation: 
Levine, Ross, Norman Loayza, and Thorsten Beck, "Financial Intermediation and Growth: Causality and Causes",  Journal of Monetary Economics, August 2000, v16, n1: 31-77 (earlier published in Beck, Levine and Loayza "Finance and the Sources of Growth" (pdf file, 181kb), 1999)

Abstract of Paper
This paper evaluates (1) whether the exogenous component of financial intermediary development influences economic growth and (2) whether cross-country differences in legal and accounting systems (e.g., 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, we find that the exogenous component of financial intermediary development is positively associated with economic growth. Also, the data show that cross-country differences in legal and accounting systems help account for differences in financial development. Together, these findings suggest that legal and accounting reforms that strengthen creditor rights, contract enforcement, and accounting practices can boost financial development and accelerate economic growth. 

Datasets:
The data sets are contained in a Microsoft Excel file. The file contains 6 sheets:

1. Data6095 - Data used for cross-sectional regressions 1960-95.
2. Data8095 - Data used for cross-sectional regressions 1980-95
3. Panel - Data used for Panel regressions 1960-95
4. Saving regressions 7095 - Data used for cross-sectional savings regressions 1970-95
5. Savings panel - Data used for savings panel regressions 1970-95
6. Variables - Description of variable names

Erratum
There was a data mistake in the original data used for the panel regressions. Specifically, the data for average years of secondary schooling were shifted by one line for some OECD countries. We therefore re-ran the panel regressions (Tables 4 and 5) and the unpublished appendix Tables VII and VIII. The results do not change substantially. We provide the revised results for Tables 4 and 5 (pdf file, 50kb) and update the appendix tables that are available on the Web. The data file has also been updated with the correct series for average years of secondary schooling in the panel data set. Note, that neither the cross-section estimations nor the results were affected by this mistake.

Access to Dataset
  • Financial Intermediation dataset (MS Excel file, 1.02mb)


  • Dataset run file (run file, 4.8kb)


  • Additional tables (pdf file, 128kb)


  • Financial Intermediation dataset description (pdf file, 121kb)





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