Local financial development and growth

By Jake Kendall. 2009

152 citations recorded by the source corpus.

Using a unique sample of net domestic product data for districts in India, I investigate the connection between banking sector development, human capital, and economic growth at the sub-national level. Using disaggregate data avoids many of the omitted variable problems that plague cross-country studies of the finance-growth connection and facilitates an instrumentation strategy. The findings show that the growth of many districts in India is financially constrained due to lack of banking sector development, and that the relationship between finance and growth may be non-linear. For the districts in the sample, moving from the 75th percentile of credit/net domestic product to the 25th percentile implies an average loss of 4 percent in growth over the 1990s. This indicates that the gains from increased banking sector outreach may be large. The analysis shows that human capital deepening can reduce the effect of the financial constraint and help decouple growth from financial development. In a district at the 25th literacy percentile, the implied growth loss due to a constrained banking sector is twice as large as in a district at the 75th literacy percentile. Thus, higher levels of human capital may activate alternative growth and production channels that are less finance intensive.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/5524870f51cf22ea4927880796572670ed080d1d

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. W. Azman-Saini
2. M. Ibrahim
3. S. Law
4. C. Adjasi
5. J. Abor
6. E. Agbloyor
7. A. Yawson
8. Nataliya Mylenko

In Finance

1. W. Azman-Saini
2. S. Law
3. M. Ibrahim
4. J. Abor
5. C. Adjasi
6. E. Agbloyor
7. A. Yawson
8. Nataliya Mylenko

Citations in the corpus

• Institutional quality thresholds and the finance Growth nexus. (2013, methodology): “A large amount of literature has examined the relationship between financial development and economic growth using crosscountry, time series, panel data, and firm-level studies (King and Levine, 1993a, 1993b; Demetriades and Hussein, 1996; Levine, 1997, 2003; Rajan and Zingales, 1998; Levine et al.,”
• Private capital flows and economic growth in Africa: The role of domestic financial markets (2014, result): “Previous studies provide empirical support to theoretical predictions that finance should exert a positive influence on economic growth (King and Levine, 1993; Beck et al., 2000; Allen and Ndikumana, 2000; Adjasi and Biekpe, 2006; Romero-Avila, 2007; Manu et al. 2011; Kendall, 2012).”
• Measuring Financial Access Around the World (2010, background): “Another line of research shows that developing financial services at the local level can improve local GDP growth and other economic outcomes [see Kendall (2008), Burgess and Pande (2005), Guiso, Sapienza, and Zingales (2004)].”