Financial Development and Economic Growth: Views and Agenda

Abstract

This critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive, first-order relationship between financial development and economic growth. The body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow, responding passively to economic growth. Many gaps remain, however, and the paper highlights areas in acute need of additional research.