Finance and Growth: A Macroeconomic Assessment of the Evidence from a European Angle

43 Pages Posted: 29 Jul 2007

See all articles by Elias Papaioannou

Elias Papaioannou

London Business School; Centre for Economic Policy Research (CEPR)

Date Written: July 2007

Abstract

This paper reviews the literature on the finance-growth nexus within a neoclassical growth framework, placing an emphasis on the policy implications in the current European environment, that has placed financial reforms high on the policy Agenda. While more research is needed to establish causality and verify the theoretical channels linking access to finance and growth, firm-level, industry-level, macro, and country-specific studies all tend to show a significant correlation between financial efficiency and economic performance. The empirical evidence hint that in underdeveloped and emerging countries financial development fosters aggregate growth mainly by lowering the cost of capital, while in advanced economies by raising total-factor-productivity.

Keywords: Finance, Financial Institutions, Development, Growth Decomposition, Financial Intermediation, Europe, Productivity

JEL Classification: G00, O00

Suggested Citation

Papaioannou, Elias, Finance and Growth: A Macroeconomic Assessment of the Evidence from a European Angle (July 2007). ECB Working Paper No. 787, Available at SSRN: https://ssrn.com/abstract=1001457 or http://dx.doi.org/10.2139/ssrn.1001457

Elias Papaioannou (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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