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Stock Markets, Banks, and Economic Growth

Ross Levine and Sara Zervos
The American Economic Review
Vol. 88, No. 3 (Jun., 1998), pp. 537-558
Stable URL: http://www.jstor.org/stable/116848
Page Count: 22
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Stock Markets, Banks, and Economic Growth
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Abstract

Do well-functioning stock markets and banks promote long-run economic growth? This paper shows that stock market liquidity and banking development both positively predict growth, capital accumulation, and productivity improvements when entered together in regressions, even after controlling for economic and political factors. The results are consistent with the views that financial markets provide important services for growth, and that stock markets provide different services from banks. The paper also finds that stock market size, volatility, and international integration are not robustly linked with growth, and that none of the financial indicators is closely associated with private saving rates.

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