Explore the link between Financial Structures and Economic Growth

Topic :

BIG TOPIC: Finance and Growth: Modern Theoretical Approach & Empirical Evidence

The fact that financial systems have become more sophisticated and more essential in shaping the development of global capitalism raised new debates on the role of finance in economic development. This lecture discusses the role of the financial sector in the economic growth process, raising an important question of causality between finance and growth, or in other words, looking at whether finance matters for growth or the other way round. To explore this we will overview a number of empirical studies investigating this issue at macro- and meso-levels of the analysis. This lecture will also provide some insights on whether it is important to distinguish between bank-based vs. market-based financial systems in studying the link between finance and growth. Finally, we will discuss some empirical literature looking at the role of finance for growth in the transition setting.

I choose: Explore the link between Financial Structures and Economic Growth

About this course: The module is assessed 100% by a coursework assignment which consists of an assessed essay of max 3,500 words, which requires students to apply different theories and concepts covered in the curriculum to analyse financial development in transition economies and beyond. The aim is the empirical exploration of a research question. Ideally, students should use some of the skills learned in quantitative and qualitative research methods courses. More information can be found in the Coursework Guidelines on Moodle.

Key reading (the literature review HAVE TO write based on those readings):

Čihàk, Martin, Aslı Demirgüç-Kunt, Erik Feyen, and Ross Levine. 2013. “Financial Development in 205 Economies, 1960 to 2010.” Journal of Financial Perspectives 1 (2): 17–36. (Earlier version issued as Policy Research Working Paper 6175, World Bank, Washington, DC). Demirgüç-Kunt, A. And R. Levine, 2008. Finance, Financial Sector Policies, and Long-Run Growth, World Bank Policy Research Working Papers, 4469 (available from World Bank website/Google search).

Calderon, C. and L. Liu, 2003. The Direction of Causality between Financial Development and Economic Growth, Journal of Development Economics 72, 321-334. Demetriades, P. O. and Hussein, K., 1996. Does financial development cause economic growth? Time-series evidence from 16 countries. Journal of Development Economics, 51 (2), pp. 387-411. King, R. and R., Levine 1993. Finance and Growth: Schumpeter Might be Right. The Quarterly Journal of Economics, Vol. 108(3), pp. 717-737.

Levine, Ross. 2005. “Finance and Growth: Theory and Evidence.” In Phillippe Aghion, and Steven Durlauf, eds., Handbook of Economic Growth, Volume I.A. Amsterdam: North Holland.

Levine, R. and Zervos, S., 1998. Stock markets, banks and economic growth. American Economic Review, 88 (3), pp. 537-58. Masten, A., Coricelli, F. and Masten, I. (2008). Non-linear growth effects of financial development: Does financial integration matter?. Journal of International Money and Finance, 27(2), pp.295-313.

Supplementary reading:

Gevorkyan Aleksandr V. and Otaviano Canuto (Eds) (2016) Financial Deepening and Post- Crisis Development in Emerging Markets: Current Perils and Future Dawns. Sahay, R. et al. (2015) Rethinking Financial Deepening: Stability and Growth in Emerging Markets, https://www.imf.org/external/pubs/ft/sdn/2015/sdn1508.pdf

EBRD, 2015 Transition report 2015-16: Rebalancing Finance. London: Oxford University Press. EBRD, 2009. Transition Report 2009, Chapter 3: Development based on Financial Integration. Estrada, G., Park, D. and Ramayandi, A. (2010). Financial Development and Economic Growth in Developing Asia. [online] Asian Development Bank. Available at: https://www.adb.org/sites/default/files/publication/28277/economics-wp233.pdf