Work detail

Finance and Growth: A Bayesian Model Averaging Evidence

Author: Mgr. Jan Mareš
Year: 2014 - summer
Leaders: prof. Roman Horváth Ph.D.
Consultants:
Work type: Economic Theory
Masters
Language: English
Pages: 81
Awards and prizes: M.A. with distinction from the Dean of the Faculty of Social Sciences for an excellent state-final examination performance and for an extraordinarily good masters diploma thesis.
Link: https://is.cuni.cz/webapps/zzp/detail/137363/
Abstract: The question whether financial development is condu
cive to economic growth has entered the
debate with new intensity following the financial c
risis of 2007-2008. We use standardized
dataset on economic growth established by the liter
ature and Financial Development Database
by World Bank to inspect the relationship. Unlike o
ther studies, we employ Bayesian Model
Averaging (BMA) to address model uncertainty inhere
nt to modelling of economic growth.
Apart from dealing with omitted variable bias it al
so allows us to compare relative importance
of banking sector and financial markets along with
their varying characteristics. Examining real
economic growth rates 1960-2011 in 68 countries, we
find little evidence in favour of traditional
financial development proxy – financial depth – to
affect economic growth. Our initial results
point to the importance of banking sector efficienc
y, approximated by net interest margin, as
essential growth determinant. Moreover, we use fina
ncial indicators to construct overall
measure of financial development and find it highly
relevant to economic growth. The results
are robust to different parameter and model priors
in BMA, but not to specifications dealing
with potentially endogenous nature of the finance-g
rowth correlation.

Partners

ČSOB
Deloitte
McKinsey & Company

Sponsors

CRIF
EY