Financial Development, Investment, Productivity and Economic Growth in the U.S.
This paper uses time-series methods and a new Granger causality procedure to examine how financial development affects long-term economic growth in the U.S. It also examines whether there is a feedback or reverse causal effect from the growth processes to financial development. The results show that financial development affects growth by increasing the level of investment and its productivity. On the other hand, no evidence of reverse causality from economic growth to financial development is found. The findings are consistent with the view that financial development has a significant and independent positive effect on long-term economic growth.
Southwestern Economic Review, Vol. 33, 2006, 23-40.