Relationship Between Financial Development And Economic Growth

922 Words Aug 9th, 2014 4 Pages
Introduction The relationship between financial development and economic growth has elicited plenty of debate over the last few years. There are numerous researchers who have undertaken substantive empirical studies on this subject and many of them have concluded that there exists a positive relationship between financial development and economic growth. For instance, King and Levine (1993) conclude that financial development is a good predictor of future growth; while, Beck et al, (2000) suggests that there exists a strong and positive contribution of the exogenous components of financial development to economic growth. However, some economists still harbor restrictions on the role of financial intermediation and financial development on economic growth. Lucas (1988), for instance, suggests that the role of financial factors in economic growth is overemphasized.
In this paper we investigate this relationship between financial development and economic growth by evaluating the impact of bank credits to the private sector on the non-oil GDP of Azerbaijan. We assume that financial development can be measured by increased bank credits to the private sector and also the performance of the non-oil sector can be a proxy to measure economic growth.
Our main research questions are thus; what is the impact of bank credit to the private sector on the non-oil GDP in Azerbaijan? And, do other factor such as real effective exchange rates impact on non-oil GDP of Azerbaijan?
The main…
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