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Financial development and economic growth: an empirical investigation of the role of banks and institutional investors

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This article gives a new light on the finance-growth nexus through the investigation of the role of institutional investors as providers of risk diversification in the process of economic growth. We make use of panel cointegration techniques to study the potential long-run relationship between economic growth, banking development and institutional investors in six Organization for Economic Co-operation and Development (OECD) countries. Our results highlight some heterogeneity in the long-run relationship between financial development and growth. Institutional investors are shown to support long-run economic growth in only two countries. We also report a negative long-run relationship between both indicators of financial development.
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Keywords: E44; G20; O16; banks; causality; economic growth; institutional investors; panel cointegration

Document Type: Research Article

Affiliations: HEC-Management School, University of Liège. Rue Louvrex, 14 (N1) – 4000 Liège, Belgium

Publication date: 2012-10-01

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