Finance and Economic Growth Dynamics
Summary
Financial development and economic growth dynamics explore how the expansion and deepening of financial systems influence the pace and quality of economic advancement. Central to this relationship are channels of financial intermediation that mobilise savings, allocate capital to productive uses and facilitate risk management. Theoretical frameworks distinguish supply-leading effects, where financial innovation spurs investment and productivity, from demand-following effects, in which economic expansion creates demand for richer financial services. Empirical studies reveal considerable heterogeneity across regions and income groups, with evidence of non-linear or threshold-type relationships: beyond certain levels of credit provision or market capitalisation, further financial deepening may yield diminishing returns or even adverse effects. Institutional quality, macro-prudential regulation and complementary infrastructure such as telecommunications have emerged as critical moderators of the finance-growth nexus. Understanding these dynamics informs policies aimed at sustainable development, financial inclusion and resilience to external shocks.
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Finance and Economic Growth Dynamics publication trend
The graph below shows the total number of articles in finance and economic growth dynamics across all publications each year (not limited to Nature Index journals).
Technical terms
Financial intermediation: The process by which financial institutions mobilise deposits to fund loans and investment, supporting productive activities.
Threshold effect: A non-linear phenomenon where the impact of financial development on growth changes once a certain level of financial deepening is reached.
Supply-leading channel: The hypothesis that financial innovation and expansion drive economic growth by providing credit and risk-sharing mechanisms.
Demand-following channel: The notion that economic growth creates increased demand for financial services, prompting sectoral expansion.
Institutional quality: The effectiveness of legal, regulatory and governance frameworks in safeguarding contracts, reducing transaction costs and promoting trust.
References
- Oil rents and non-oil economic growth in CIS oil exporters. The role of financial development. Resources Policy (2023).
- Toward a sustainable growth path in Arab economies: an extension of classical growth model. Financial Innovation (2023).
- Financial development and economic growth nexus in SSA economies: The moderating role of telecommunication development. Cogent Economics & Finance (2021).
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