Finance and Economic Development

Part of the International Development Policy book series (IDP)


This chapter reviews the literature on finance and economic development. It starts with a description of the roles of finance, a definition of financial efficiency, and a discussion of whether countries may have financial sectors that are ‘too large’ compared to the size of the domestic economy. Next, the author describes several indicators of financial development and reviews the literature on the relationship between financial development and economic growth. In the literature review, he discusses in detail some recent evidence indicating that the marginal contribution of financial development to gross domestic product (GDP) growth becomes negative when credit to the private sector reaches 110 per cent of GDP. The chapter concludes with some policy conclusions targeted to developing countries.


Gross Domestic Product Stock Market American Economic Review Financial Development Bank Credit 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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