ABSTRACT
The literature on financial development and economic growth is large, technical and inconclusive. In a survey written more than 15 years ago, my Berkeley colleague Ross Levine cited upwards of 150 studies, many of which used time-series and cross-country data in an effort to identify the impact of financial variables on growth. On the heels of Levine’s survey, the Asian financial crisis of 1997–8 and then the global credit crisis of 2008–9 raised new questions about the connection. The Asian crisis caused observers to ask whether the region’s bank-based financial systems maximized brute-force capital accumulation at the cost of efficiency and stability. This led to a push to develop securities markets at the national and regional levels. It highlighted the distinction between financial liberalization and financial development, two concepts that are not interchangeable, as Asian countries learned to their chagrin.
