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Title:What determines the finance-growth nexus? An endogenous growth model and empirical evidence PDF Logo
Authors:Graff, Michael
Karmann, Alexander
Issue Date:2003
Series/Report no.:Dresden discussion paper in economics 15/03
Abstract:An endogenous growth model with a financial sector is formulated, and empirical analyses are conducted. The model exhibits structural shifts and breaks caused by institutional change, suggesting that a linear approach is inadequate. To address this point empirically, we fit data for 90 countries from 1960–2000 to a standard growth equation with a proxy for financial activity. Firstly, it is shown that a growth enhancing outcome of financial activity is contingent on a sound institutional framework. Then, we order the sample by control variables which follow from the model as potential causes of breaks in the adjustment process. Threshold regressions reveal non-linearity that is consistent with the model. Most importantly, we find signs for excessive financial activity.
Subjects:Financial Development
Endogenous Growth
Institutions
Non-linearities
JEL:O16
O42
O57
Document Type:Working Paper
Appears in Collections:Dresden Discussion Paper Series in Economics, Faculty of Business and Economics, TU Dresden

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