WHAT IS THE LINK BETWEEN FINANCE AND ECONOMIC GROWTH? A REVIEW

Abstract

The paper contributes to the body of knowledge in the area of economic growth and fiancé by reviewing empirical works to assess the link and causality between economic growth and financial development. The paper is significant since economies aim at achieving economic growth and with the development of financial institutions their role in achieving economic growth needs to be assessed. Purposive sampling method was used in selecting the research works for the review. The sources of information are journals and conference papers. These findings have been mixed or inconsistent. There is significant positive relation between finance and economic growth in some studies while as other studies could not established the same findings. In some studies there is unidirectional causality while as in other studies there is bidirectional causality. This calls for further studies to contribute to the debate using multiple models that are recent in a single study.

Keywords: Economic growth; financial development; causality