Financial Markets Banks and Growth: Disentangling the Links

Alessandro Giovannini (1) , Maurizio Iacopetta (2) , Raoul Minetti (3)

1 European Central Bank
2 OFCE - Observatoire français des conjonctures économiques (Sciences Po)
3 Michigan State University [East Lansing]

The paper reviews the state of the economic literature on the link between financial development and growth. We first examine the issue of measurement of financial development and the debate on the direction of causality between finance and growth. Next, we extensively discuss the various channels through which the financial sector can affect growth, including the increase in the efficiency of capital allocation, the reduction in information costs, the improvement of risk management, and the support of innovation. The analysis is conducted referring both to the theoretical literature and to the most recent empirical findings. We conclude by drawing lessons for the current debate on the reform of the financial sector in the aftermath of the Great Recession.

Keywords: financial development; growth; banks; stock markets; crisis

Domains: Economics and Finance

Alessandro Giovannini, Maurizio Iacopetta, Raoul Minetti. Financial Markets Banks and Growth: Disentangling the Links. 2013. ⟨hal-03460718⟩