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The Relationship Among Stock Markets, Banks, Economic Growth, and Industry Development

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Economic Growth

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Abstract

Most previous studies examining the effect of financial and stock market development on economic growth did not consider the different levels of economic development, assuming that the effect is same at all stages of economic development. Thus, previous literature is unable to sufficiently explain the recent economic crisis caused by the excessive development of financial markets in developed economies. This study analyzes the effect of financial and stock market development on economic growth considering countries’ varying levels of development, using a dynamic panel generalized method of moments on a panel data for 94 countries from 1976 to 2005. The results show that for high-income countries, the effect of financial and stock market development on economic growth is negative. However, if such countries develop their financial markets with their manufacturing industries, the effect becomes positive. This study presents policy recommendations emphasizing the significance of combining financial development with real economic development.

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Notes

  1. 1.

    Generalized method of moments.

  2. 2.

    Middle East and North Africa.

  3. 3.

    Further details on the World Bank country classification are available at http://data.worldbank.org/about/country-classifications.

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Authors and Affiliations

  1. Department of Industrial Engineering/Technology Management Economics and Policy Program (TEMEP), College of Engineering, Seoul National University, 599 Gwanak-ro, Gwanak-Gu, Seoul, 151-742, South Korea

    Tai-Yoo Kim, Yeonbae Kim & Jeong-Dong Lee

  2. Department of Civil, Architectural and Environmental Engineering, The University of Texas at Ausitn, 301 E. Dean Keeton St. Stop C1761, Austin, Texas, 78712, USA

    Jungwoo Shin Ph. D. in Engineering

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  1. Tai-Yoo Kim
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  2. Jungwoo Shin Ph. D. in Engineering
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  3. Yeonbae Kim
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  4. Jeong-Dong Lee
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Correspondence to Tai-Yoo Kim .

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Kim, TY., Shin, J., Kim, Y., Lee, JD. (2014). The Relationship Among Stock Markets, Banks, Economic Growth, and Industry Development. In: Economic Growth. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-40826-7_9

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  • DOI: https://doi.org/10.1007/978-3-642-40826-7_9

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  • Online ISBN: 978-3-642-40826-7

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