Research Discussion Papers, Bank of Finland
What type of finance matters for growth? Bayesian model averaging evidence
(), Roman Horvath
() and Jan Mares
Abstract: We examine the effect of finance on long-term economic
growth using Bayesian model averaging to address model uncertainty in
cross-country growth regressions. The literature largely focuses on
financial indicators that assess the financial depth of banks and stock
markets. We examine these indicators jointly with newly developed
indicators that assess the stability and efficiency of financial markets.
Once we subject the finance-growth regressions to model uncertainty, our
results suggest that commonly used indicators of financial development are
not robustly related to long-term growth. However, the findings from our
global sample indicate that one newly developed indicator – the efficiency
of financial intermediaries – is robustly related to long-term growth.
Keywords: finance; growth; Bayesian model averaging; (follow links to similar papers)
JEL-Codes: C11; G10; O40; (follow links to similar papers)
42 pages, June 8, 2015
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