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Michele Faggion
Elisabetta Mingardo
Roberto Puglisi
Finance and Growth:
theory and evidence
International Economics
and Finance – 30/11/2011
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
Part 1
Introduction

Part 2
Influence of financial development
on economic growth
Finance and Growth:
theory and evidence

Part 3
Bank-based system vs. Marked
Index
based system: pros and cons

Part 4
Econometric approaches

Part 5
Conclusions
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1.
Introduction
Part 1
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Introduction

“Where enterprise leads, finance follows” (Robinson, 1952)

“[The idea] that financial markets contribute to economic
growth is a proposition too obvious for serious
discussion” (Miller, 1998)
Is finance a determinant of economic growth?

There are different positions among economists on the
relationship between finance and economic growth.

Research clarifies the role of finance in economic growth
will have policy implications and shape policy-oriented
research.
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Part 2
2.
Influence of financial development on
economic growth
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Influence of financial development
on economic growth

The development of financial instruments, markets and
institutions can ameliorate market frictions, change the
incentives and constrints facing economic agents.

The issue is determine whether financial system can
positively affect saving rates, investment decisions,
tecnological innovations and, hence, long-term economic
growth.
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Financial Functions

We’ll analyse the main functions provided by the financial
system:
1)
Producing information and allocating capital
2)
Monitoring investments and exerting corporate governance
3)
Diversification and risk management
4)
Mobilizing and pooling savings.
5)
Easing the exchange of goods and services.
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Financial Functions
1) Producing information and allocating capital

There are huge information costs to sustain before making
an investment decision (evalutating firms, manager and
market conditions)

Small savers may not have enought rosources to provide
these informations. Since savers will prefer to invest in
activities with reliable information and lower risks, high
information cost may prevent capital from flowing to more
innovative and riskier activities.

For this reason, the development of finacial intermediaries
should reduce cost of information and, hance, improve
resouce allocation.
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Part 3
3.
Bank-based system vs. Marked-based
system: pros and cons
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Part 4
4.
Econometric approaches
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Part 5
5.
Conclusions
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Conclusioni