Impact of finance on growth: Does it vary with development levels or cyclical conditions?

Financial systems are complex and may support economic growth differently at various stages of economic development. This study of 90 countries extends the financial development-economic growth literature by using four proxies of financial development (banking, stock market, bond market and insurance), and considering a country’s level of economic development, on both a full and pre-global crisis sample. As expected financial markets have different effects on growth where the level of economic development vary. Policy makers should find that the insurance sector offers the most benefit for economic growth at all levels of development. Stock markets promote growth for middle income countries. Similarly bond markets promote growth with middle and high income countries. Some bond market and stock market results differed in the pre-crisis sample. Policies which promote trade but limit other areas such as inflation, government consumption and crises, should also support growth.