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Stock markets, banks, and economic growth, Volume 1 of 4
 
Author:Levine, Ross; Zervos, Sara; Collection Title:Policy, Research working paper ; no. WPS 1690
Date Stored:1996/12/01Document Date:1996/12/31
Document Type:Policy Research Working PaperSubTopics:Achieving Shared Growth; Governance Indicators; Economic Theory & Research; Payment Systems & Infrastructure; Banks & Banking Reform; Fiscal & Monetary Policy; Financial Intermediation
Language:EnglishMajor Sector:Finance
Report Number:WPS1690Sub Sectors:Capital Markets Development
Volume No:1 of 4Related Dataset:Stock Markets, Banks, and Economic Growth: Published in American Economic Review (1998) Dataset;

Summary: Using data on 49 countries from 1976 to 1993, the authors investigate whether measures of stock market liquidity, size, volatility, and integration in world capital markets predict future rates of economic growth, capital accumulation, productivity improvements, and private savings. They find that stock market liquidity-as measured by stock trading relative to the size of the market and economy - is positively and significantly correlated with current and future rates of economic growth, capital accumulation, productivity growth, even after controlling for economic and political factors. Stock market size, volatility, and integration are not robustly linked with growth. Nor are financial indicators closely associated with private savings rates. Significantly, banking development -as measured by bank loans to private enterprises divided by GDP -when combined with stock market liquidity predicts future rates of growth, capital accumulation, and productivity growth when entered together in regressions. The authors determine that these results are consistent with views that (1)financial markets and institutions provide important services for long-run growth, and (2)stock markets and banks provide different financial services.

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