Beck, Thorsten2012-05-302012-05-302008-04https://hdl.handle.net/10986/6703This paper reviews different econometric methodologies to assess the relationship between financial development and growth. It illustrates the identification problem, which is at the center of the finance and growth literature, using the example of a simple Ordinary Least Squares estimation. It discusses cross-sectional and panel instrumental variable approaches to overcome the identification problem. It presents the time-series approach, which focuses on the forecast capacity of financial development for future growth rates, and differences-in-differences techniques that try to overcome the identification problem by assessing the differential effect of financial sector development across states with different policies or across industries with different needs for external finance. Finally, it discusses firm-level and household approaches that allow analysts to dig deeper into the channels and mechanisms through which financial development enhances growth and welfare, but pose their own methodological challenges.CC BY 3.0 IGOABSENCE OF CREDITACCESS TO CREDITACCESS TO FINANCEACCESS TO FINANCIAL SERVICESACCOUNTINGAGGREGATE LEVELAGRICULTUREAMOUNT OF CREDITANNUAL GROWTHANNUAL GROWTH RATEAUTOREGRESSIONAVERAGE GROWTHAVERAGE GROWTH RATEBAD BANKSBANK BRANCHBANK POLICYBANKING CRISISBANKING INSTITUTIONSBANKING SECTORBANKING SECTOR DEVELOPMENTBANKING SYSTEMSBANKSBENCHMARKBIASESBONDBONDSBORROWINGBUSINESS CYCLECAPITAL ACCUMULATIONCAPITAL ALLOCATIONCASH FLOWCASH HOLDINGSCOMPETITIVENESSCONSUMER CREDITCONSUMPTION EXPENDITURESCORPORATE GOVERNANCECOUNTRY CHARACTERISTICSCOUNTRY DATACOUNTRY REGRESSIONSCOUNTRY SPECIFICCOVARIANCE MATRIXCREDIT ACCESSCREDIT CONSTRAINED FIRMSCREDIT CONSTRAINTSCREDIT INSTITUTIONCREDIT MARKETCREDIT PROGRAMCREDIT PROGRAMSDATA SETSDEMAND FOR MONEYDEPENDENT VARIABLEDEPOSITDEPOSIT INSURANCEDEREGULATIONDEVELOPED COUNTRIESDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDEVELOPMENT INDICATORSDEVELOPMENT RESEARCHDISAGGREGATED LEVELDYNAMIC PANELEARNINGSECONOMETRIC MODELSECONOMETRICSECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC HISTORYECONOMIC LITERATUREECONOMIC PERFORMANCEECONOMIC STATISTICSECONOMIC STUDIESECONOMICSECONOMICS LETTERSEMPIRICAL STUDIESEMPLOYMENT EQUATIONSENDOGENOUS VARIABLESERROR TERMERROR TERMSESTIMATION TECHNIQUESEXCLUSIONEXOGENOUS VARIABLESEXPENDITURESEXPLANATORY VARIABLESEXTERNAL FINANCEEXTERNAL FINANCINGFARMERSFEDERAL RESERVEFINANCIAL DEPTHFINANCIAL DEVELOPMENTFINANCIAL FRAGILITYFINANCIAL INFORMATIONFINANCIAL INSTITUTIONSFINANCIAL INTERMEDIARIESFINANCIAL INTERMEDIARYFINANCIAL INTERMEDIATIONFINANCIAL LIBERALIZATIONFINANCIAL MARKETSFINANCIAL OUTREACHFINANCIAL SECTORFINANCIAL SECTOR DEVELOPMENTFINANCIAL SECTOR INDICATORSFINANCIAL STRUCTUREFINANCIAL SYSTEMFINANCIAL SYSTEMSFINANCING NEEDFINANCING NEEDSFINANCING OBSTACLEFINANCING OBSTACLESFIXED EFFECTSGDP PER CAPITAGENDERGNPGROUP LENDINGGROWTH EFFECTGROWTH IMPACTGROWTH LITERATUREGROWTH MODELSGROWTH RATEGROWTH RATESGROWTH REGRESSIONGROWTH REGRESSIONSHOLDINGSHOUSEHOLD DATAHOUSEHOLD SURVEYSHOUSEHOLD WELFAREHOUSEHOLDSINCOME DISTRIBUTIONINCOME INEQUALITYINDIVIDUAL COUNTRIESINDUSTRIALIZATIONINDUSTRIALIZED COUNTRIESINEQUALITYINFORMATION ASYMMETRIESINSTITUTIONAL INVESTORSINSTRUMENTINTERNAL FUNDSINTERNATIONAL BANKINTERNATIONAL ECONOMICSINTERNATIONAL TRADEINVESTMENT DECISIONINVESTMENT DECISIONSINVESTMENT PROJECTSLABOR MARKETLAGGED DEPENDENTLAGGED LEVELSLAGGED VALUESLEGAL CONSTRAINTSLEGAL REFORMSLIQUID ASSETSLIQUIDITYLOANLONG RUNM2M3MACROECONOMIC VARIABLESMARGINAL COSTMARGINAL PRODUCTMARKET CONSTRAINTSMARKET DEVELOPMENTMARKET LIQUIDITYMAXIMUM LIKELIHOOD ESTIMATIONMICRO-DATAMICRO-ENTERPRISESMICROCREDITMICRODATAMICROENTERPRISESMICROFINANCEMICROFINANCE INSTITUTIONSMONETARY ECONOMICSNORMAL DISTRIBUTION0 HYPOTHESISOPEN ECONOMIESOPTIMAL INVESTMENTOUTREACHPANEL REGRESSIONSPAYMENT SERVICESPER CAPITA GROWTHPHYSICAL CAPITALPOLICY CHANGEPOLICY CHANGESPOLICY INTERVENTIONSPOLICY REFORMSPOLICY RESEARCHPOLICY VARIABLESPOLITICAL ECONOMYPOOR HOUSEHOLDSPOVERTY LEVELSPRIVATE CREDITPRODUCTIVITY GROWTHPROPERTY RIGHTSREAL GDPREINVESTMENTRELATIVE IMPORTANCERESOURCE ALLOCATIONRETURNSSALES GROWTHSAVINGSSECURITIESSERIAL CORRELATIONSHORT-TERM BORROWINGSIGNIFICANT CORRELATIONSIGNIFICANT EFFECTSMALL ENTERPRISESSTANDARD DEVIATIONSTATISTICAL ANALYSISSTOCK MARKETSTOCK MARKET DEVELOPMENTSTOCK MARKETSSUPPLY CURVETRADE CREDITTRADE OPENNESSTRANSACTIONTRANSACTION COSTSTURNOVERVALUE ADDEDVILLAGEVILLAGESWorld Bank10.1596/1813-9450-4608