New perspectives on finance and growth
reportposted on 2010-02-05, 16:23 authored by Panicos O. Demetriades
This paper offers a number of new perspectives on the finance and growth literature. It starts by reviewing the empirical evidence on finance and growth, highlighting studies which suggest that financial development may be ineffective in delivering growth in the poorest of countries. The paper proceeds to examine the likely sources of financial (under-)development and argues that: (a) the legal origins view has been largely discredited by lawyers; (b) government ownership of banks is much more of a symptom of weak institutions than a cause of financial under-development. It then argues that political economy explanations of financial development, focussing on the role of incumbents, income and wealth inequality and the evolution of economic institutions, are much more promising hypotheses but remain largely untested. It calls for more work to test and develop further these ideas but warns against over-simplified notions of politics. It ends by reviewing recent work on the political economy origins of financial development and the politics of financial reforms, which suggests that politics plays a greater and more complex role than has so far been recognised by the economics literature on finance and growth.