| National and international policymakers are interested in promoting global economic growth and are particularly interested to learn how financial sector development (FSD) can accelerate the process. This dissertation focuses on the impact of various external factors, many of which are under the control of policymakers. Examples of such factors include a countries legal structure and property rights, foreign bank entry restrictions, bank privatization and market concentration, deposit insurance, and technological innovation. The dissertation employs a cross-country, inter-temporal database for a sample of both advanced and emerging countries. More specifically, the study focuses on those external factors that directly and indirectly influence the relationship between financial sector development and economic growth. While previous studies have identified and modeled individual external factors, this dissertation is the first study to link, in a rigorous and comprehensive way, a wide range of external factors, financial sector development, and economic growth.;Including a vector of alternative FSD measures and external factors in the economic growth model reveals a number of important differences: (1) FSD has a strong positive impact on economic growth in the sample of advanced countries but no significant impact among emerging countries, (2) bank overhead costs, which serves as an inverse measure of bank efficiency, has a differential impact; positive for emerging countries and negative for advanced countries, (3) a measure of bank concentration provides evidence to support the efficient structure theory in advanced countries, while the extent of foreign bank entry has a positive indirect impact on economic growth in emerging countries, (4) another measure of inverse efficiency in the intermediation process, net interest margin, shows a consistent negative impact on economic growth, (5) both technology exports and a measure of the relative size of the commercial banking sector serves to promote economic growth among both advanced and emerging countries. The model is quite flexible in that it allows these external factors to impact economic growth in both a direct and an indirect manner. |
