Finance and Growth: Theory and International Evidence

Abstract

The present study has two-pronged objectives. First, to construct, through the Principal Component Analysis, an index for measuring the stock markets development for twenty-two sample countries and second, using the time series analysis, the form of relationship has been examined for the banking sector and stock markets to the economic growth of each country. The findings of the study exhibit substantial variation across countries even when the same variables and estimation methods have been used and hardly there exists any general consensus about the leading role of finance to the economic growth of a country.