Financial Development, Policy and Economic Growth 1

The existence of a correlation between financial development and economic growth has been very well documented in the recent literature. ² However, such a relationship is much more complex than assumed in linear regressions put forward by, for example, King and Levine (1993). In particular, the causality between financial development and growth is rather unclear. As soon as we consider a two-way causation, it becomes impossible to derive any lesson, from a policy design point of view, from such results.