Finance-Led Growth in the OECD since the Nineteenth Century: How Does Financial Development Transmit to Growth?
Madsen, Jakob B.
Ang, James B.
Date of Issue2016
College of Humanities, Arts, and Social Sciences
It is well established in the literature that financial development (FD) is conducive to growth, and yet the channels through which FD affects growth are not well understood. Using a unique new panel data set for 21 OECD countries over the past 140 years, this paper examines the extent to which FD transmits to growth through ideas production, savings, fixed investment, and schooling. Unionization and agricultural share are used as instruments for FD. The empirical results show that FD influences growth through all four channels. In particular, ideas production is found to be the most important channel through which FD affects growth.
Review of Economics and Statistics
© 2016 the President and Fellows of Harvard College and the Massachusetts Institute of Technology. This paper was published in Review of Economics and Statistics and is made available as an electronic reprint (preprint) with permission of the President and Fellows of Harvard College and the Massachusetts Institute of Technology. The published version is available at: [http://dx.doi.org/10.1162/REST_a_00513]. One print or electronic copy may be made for personal use only. Systematic or multiple reproduction, distribution to multiple locations via electronic or other means, duplication of any material in this paper for a fee or for commercial purposes, or modification of the content of the paper is prohibited and is subject to penalties under law.