The Econometrics of Finance and Growth

By Thorsten Beck. 2008

219 citations recorded by the source corpus.

This paper reviews different econometric methodologies to assess the relationship between financial development and growth. It illustrates the identification problem, which is at the center of the finance and growth literature, using the example of a simple Ordinary Least Squares estimation. It discusses cross-sectional and panel instrumental variable approaches to overcome the identification problem. It presents the time-series approach, which focuses on the forecast capacity of financial development for future growth rates, and differences-in-differences techniques that try to overcome the identification problem by assessing the differential effect of financial sector development across states with different policies or across industries with different needs for external finance. Finally, it discusses firm-level and household approaches that allow analysts to dig deeper into the channels and mechanisms through which financial development enhances growth and welfare, but pose their own methodological challenges.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/fdebb7ffbf0864b656ba46c079717ccc74117e85

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Citations in the corpus

Financial Development and Industrial Pollution (2018, unknown): “The data come from Beck et al. (2016) and are available for all countries in the dataset.”
Finance and Growth: Time Series Evidence on Causality (2015, background): “Beck, Demirguc-Kunt, Laeven and Levine (2008) make a first step in this direction by showing how the development of the financial sector has a disproportionate positive effect on small firms.”
The Role of Finance in Economic Development: Benefits, Risks, and Politics (2011, background): “Levine (2005) surveys the theoretical and empirical literature on finance and growth, and Beck (2009) surveys the econometric methodologies behind the empirical finance and growth literature.”
Firm Productivity, Innovation and Financial Development (2010, methodology): “For example, Beck et al. (2000) estimate the relation between financial development, TFP and growth using cross-country and cross-industry data.”
Does economic freedom cause prosperity? An IV approach (2009, background): “This result is consistent with the existence of attenuation bias due to measurement errors ( Beck 2008 ).”
Financial Inclusion and Economic Growth: The Role of Governance in Selected MENA Countries (2021, methodology): “11 A similar conclusion was made by Beck et. al (2000) upon employing a cross-country instrumental variable estimator to extort the exogenous constituent of financial intermediary development.”
Finance and Oil. Is there a Resource Curse in Financial Development (2011, unknown): “An extensive literature has identified financial sector development as a critical factor in inclusive economic development (see Levine, 2005 and Beck, 2009 for overviews).”
Bank Ownership and Credit Over the Business Cycle: Is Lending by State Banks Less Procyclical? (2012, background): “In addition the lagged variables become weak instruments if the explanatory variables are persistent over time deteriorating asymptotic properties (see Beck (2008)).”
Finance and economic growth in OECD and G20 countries (2015, methodology): “Beck and Levine (2002) argue that growth rates of industries requiring more external finance are no different between bank- and market-based economies.”
Does banking sector development promote economic growth? An empirical analysis for selected countries in Central and South Eastern Europe (2014, methodology): “PC is one of the main proxies for financial development used in many empirical studies (Beck and Levine, 2004; Koivu, 2002) and it is especially relevant for the countries studied, because it excludes credits by development banks and loans to the government and public enterprises. RQM (M2–M1), is of”
How Does Political Instability Affect Economic Growth? (2010, methodology): “Then, Levine et al. (2000) used the system-GMM estimator 16 , which is now common practice in the literature (Durlauf et al., 2005; Beck, 2008).”
Financial Development and Economic Growth: Evidence from Ten New EU Members (2009, unknown): “Note also that, in the case of cross-section regressions, the lagged dependent variable is correlated with the error term if it is not instrumented (see Beck, 2008).”
Financial Institutions and Markets across Countries and over Time (2010, background): “For an overview of the extensive literature on the finance and growth relationship, see Levine (2005) and Beck (2009).”