Causal Links Between Financial Activity and Economic Growth: Empirical Evidence from a Cross–Country Analysis, 1970–1990

Abstract

To clarify the causal links between financial activity and economic growth, a series of path models is estimated. It is shown that during the 1970s and 1980s finance was predominantly a supply–leading determinant of economic growth. The data suggest, however, that there has been a structural change and that from about 1975–80, finance was far less beneficial – and possibly even detrimental – to growth.

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