What Matters in the Finance-Growth Nexus of Developed Economies? Evidence from OECD Countries

While the majority of empirical work examines growth effects of financial sector “size”, we provide evidence for the role of financial sector “structure”. Focusing on stock markets, we study OECD countries over the 1994-2013 period and find that relatively larger stock markets facilitate economic growth and mitigate economic risk. We find no such effect for private bond markets and private credit volume. Overall, our results suggest that financial sector “structure” matters for economic development of advanced economies highlighting the importance of addressing financial structure gaps.