Contents

Abstract 866

Keywords 866

1. Introduction 867

2. Financial development and economic growth: Theory 869

2.1. Whatisfinancialdevelopment? 869

2.2. Producing information and allocating capital 870

2.3.

2.4. Risk amelioration 875

2.5. Poolingofsavings 879

2.6. Easing exchange 880

2.7. The theoretical case for a bank-based system 881

2.8. The theoretical case for a market-based system 883

2.9. Countervailing views to bank-based vs. market-based debate 886

2.10. Finance, income distribution, and poverty 887

3. Evidence on finance and growth 888

3.1. Cross-country studies of finance and growth 889

3.1.1. Goldsmith, the question, and the problems 889

3.1.2. More countries, more controls, and predictability 890

3.1.3. Adding stock markets to cross-country studies of growth 893

3.1.4. Using instrumental variables in cross-country studies of growth 897

3.2. Panel, time-series, and case-studies of finance and growth 899

3.2.1. The dynamic panel methodology 900

3.2.2. Dynamic panel results on financial intermediation and growth 901

3.2.3. Dynamic panel results and stock market and bank development 904

3.2.4. Time series studies 905

3.2.5. Novel case-studies 907

3.3. Industry and firm level studies of finance and growth 910

3.3.1. Industry level analyses 910

Handbook of Economic Growth, Volume 1A. Edited by Philippe Aghion and Steven N. Durlauf

© 2005 Elsevier B.V All rights reserved

DOI: 10.1016∕S1574-0684(05)01012-9

3.3.2. Firm level analyses of finance and growth

914

918

920

921

923

923

3.4. Are bank- or market-based systems better? Evidence

3.5. Finance, income distribution, and poverty alleviation: evidence

4. Conclusions

Acknowledgements

References