Finance and Growth: Theory and New Evidence

37 Pages Posted: 14 Dec 1999

See all articles by Paul Harrison

Paul Harrison

Federal Reserve Board - Division of Research & Statistics

Oren Sussman

European Corporate Governance Institute (ECGI)

Joseph Zeira

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); LUISS Guido Carli, DPTEA

Date Written: July 16, 1999

Abstract

This paper describes a feedback effect between real and financial development. The paper presents a new variable, which we call the cost of financial intermediation, through which the feedback between finance and growth operates. The theoretical part of the paper describes how specialization of financial intermediaries leads to such a feedback effect. The main result of this feedback is that differences in productivity across countries are amplified by financial intermediation. The empirical part of the paper uses U.S. cross-state data from banks' income statements to measure the cost of financial intermediation and to provide evidence for the feedback effect between finance and growth.

JEL Classification: E44, G21, O16

Suggested Citation

Harrison, Paul and Sussman, Oren and Zeira, Joseph, Finance and Growth: Theory and New Evidence (July 16, 1999). Available at SSRN: https://ssrn.com/abstract=186142 or http://dx.doi.org/10.2139/ssrn.186142

Paul Harrison (Contact Author)

Federal Reserve Board - Division of Research & Statistics ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-3637 (Phone)
202-452-3819 (Fax)

Oren Sussman

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Joseph Zeira

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem 91905, Jerusalem 91905
Israel
+972 2 588 3256 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

LUISS Guido Carli, DPTEA ( email )

viale Pola 12
Roma, Roma 00198
Italy

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