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Finance, Law and Growth

Alexander Hamilton argued in 1781 that "banks were the happiest engines that were ever invented"for spurring economic growth. Others disagree. President John Adams argued in 1819 that banks harm the "morality, tranquility and even wealth" of nations. Theoretical models also provide conflicting answers to the question whether financial intermediaries and markets foster or stymie economic growth, While previous research has shown an empirical relation between financial development and subsequent economic growth, this line of research assesses empirically whether financial development has a causal impact on economic development. This includes cross-country, firm-level studies and country studies. This research also analyzes whether financial intermediaries increase economic growth through better resource allocation and higher productivity growth or through faster capital accumulation. This is an important not just for academics interested in the determinants of economic development, but also for policy makers interested in fostering economic development.

Finance, Law and Growth scatter plot image

Having established a causal impact of both financial intermediaries and financial markets, the discussion has recently turned to the determinants of an efficient and vibrant financial sector. Our research has focused both on specific policies as well as the historic determinants of financial development. Legal system efficiency is often named as one of the keys to a well-developed financial system, and our research tries to understand both the relation between legal traditions and financial development as well as the mechanisms of this relation.


This database of Indicators of Financial Development and Structure across countries and over time is unique in that it unites a range of indicators that measure the size, activity and efficiency of banks, non-banks financial institutions and capital markets. Data are available for over 100 countries and for the period 1960-2003. The database is being regularly updated.


Policy Research Working Papers

For more policy research working papers from the World Bank's institutional archives, search here using author’s last name, title or working paper number (“wpsxxxx”).

WPS4967Finance and inequality : theory and evidenceDemirguc-Kunt, Asli; Levine, Ross2009/06
WPS4608The econometrics of finance and growthBeck, Thorsten2008/04
WPS4538License to sell : the effect of business registration reform on entrepreneurial activity in MexicoBruhn, Miriam2008/02
WPS3955Finance and economic development : policy choices for developing countriesDemirguc-Kunt, Asli2006/06
WPS3940What determines protection of property rights ? An analysis of direct and indirect effectsAyyagari, Meghana; Demirguc-Kunt, Asli; Maksimovic, Vojislav2006/06
WPS3709How well do institutional theories explain firms' perceptions of property rights?Ayyagari, Meghana; Demirguc-Kunt, Asli; Maksimovic, Vojislav2005/09
WPS3657Institution building and growth in transition economiesBeck, Thorsten; Laeven, Luc2005/07
WPS3485Finance, firm size, and growthBeck, Thorsten; Demirguc-Kunt, Asli; Laeven, Luc; Levine, Ross2005/01
WPS3194Law and firms' access to financeBeck, Thorsten; Demirguc-Kunt, Asli; Levine, Ross2004/01
WPS3136Legal institutions and financial developmentThorsten Beck; Ross Levine2003/09
WPS3105Further evidence on the link between finance and growth : an international analysis of community banking and economic performanceBerger, Allen N; Hasan, Iftekhar; Klapper, Leora F.2003/08
WPS2904Law and finance : why does legal origin matter?Beck, Thorsten; Demirguc-Kunt, Asli; Levine, Ross2002/10
WPS2608Financial development and international trade : is there a link?Beck, Thorsten2001/05
WPS2609Financial dependence and international tradeBeck, Thorsten2001/05
WPS2382Impediments to the development and efficiency of financial intermediation in BrazilBeck, Thorsten2000/06
WPS2057Finance and the sources of growthBeck, Thorsten; Levine, Ross; Loayza, Norman1999/02
WPS2059Financial intermediation and growth : Causality and causesLevine, Ross; Loayza, Norman; Beck, Thorsten1999/02
WPS1690Stock markets, banks, and economic growthLevine, Ross; Zervos, Sara1996/12

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