Finance and Growth: the Long-run and Short-run Puzzle Effect

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Finance and Growth the Long-run and Short-run
Puzzle Effect By Binam Raj Ghimire
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Motivation
Economic Growth Importance Evolution of
economy Catching up with Growth
Source http//borgenproject.org/Pictures.html
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In Literature
developments in finance enabled the industrial
revolution - Walter Bagehot (1873) where
enterprise leads finance follows -Joan
Robinson (1952) although conclusions must be
stated hesitantly and with ample qualifications,
.. suggests a positive first-order
relationship between financial development and
economic growth. - Ross Levine (1997, 2005)
Walter Bagehot
Ross Levine
Source picture top http//www.spartacus.schoolne
t.co.uk, picture bottom Brown University,
Providence
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A recent report 13 Countries, 7 pa growth, 25
Yrs.
Source Commission on Growth and Development
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Variables for Financial Development (Banks)
Bank Development
- Private Credit / GDP
Beck, Kunt and Levine (2007) Bangladesh 23
Thailand 65 Headcount 1983 26 2000 36
(Could have been 15 population living on less
than one dollar a day)
HSBC Bank Mexico, Source www.newcityskyline.com
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Variables for Financial Development (Stock
Market)
Stock Market Development
- Capitalisation - Traded value - Turnover
Control Variables
NASDAQ at Times Square, Source www.nasdaq.com
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Data Methodology
Panel Data, Pooled, Fixed and Random Effect, OLS
25 Yrs. 208 Countries
Where Y Real per capita GDP C Private Credit
M Stock Market X Control Variables
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Short run and long run dynamics in economics
Real GDP per capita growth rate
Short-run
Economy is unstable
World, East Asia Pacific
1997
Long-run
Economy is in equilibrium
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Results
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Conclusion
Rethinking Is there a link between financial
development and economic growth?
Source Logo bbc.co.uk