Is the financial system important for economic growth? One line of research argues that it is not; another line stresses the importance of the financial system in mobiliz-ing savings, allocating capital, exerting corporate control, and easing risk manage-ment. Moreover, some theories provide a conceptual basis for the belief that larger,more efficient stock markets boost economic growth. This article examines whether there is a strong empirical association between stock market development and long-run economic growth. Cross-country growth regressions suggest that the predeter-mined component of stock market development is positively and robustly associated with long-run economic growth.
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