Abstract
In this paper, we use the autoregressive distributed lag (ARDL) bounds testing approach to examine the dynamic impact of both bank-based financial development and market-based financial development on economic growth in the United States of America (USA) during the period 1980 to 2012. In order to adequately capture the depth and width of the USA?s financial system, we used both bank-based and marketbased financial development indices as proxies for bank-based and market-based financial systems. These indices were constructed from a number of bank- and market-based financial development indicators, using the method of means-removed average. Our empirical results reveal that both bank-based and market-based financial development have a positive impact on economic growth in the USA. These results apply irrespective of whether the regression analysis is conducted in the long run or in the short run. We, therefore, recommend that both pro-bank-based and pro-market-based financial sector development policies should be pursued in the USA - in order to bolster real sector growth and economic development.
Highlights
An Overview of the Financial Systems in the United States of America (USA)Modern or otherwise, the USA has one of the most highly developed financial systems in the world, which ranks very high in terms of the development and sophistication of its financial intermediaries and markets – as well as the size, depth and access available to its financial services
The relative impact of bank- and market-based financial development on economic growth in the United States of America (USA) has been explored during the period from 1980 to 2012
A number of studies have been done in an attempt to solve the finance-growth puzzle, many of these studies concentrated on bank-based proxies of financial development and ignored market-based proxies
Summary
Modern or otherwise, the USA has one of the most highly developed financial systems in the world, which ranks very high in terms of the development and sophistication of its financial intermediaries and markets – as well as the size, depth and access available to its financial services In order to keep pace with the global demand for modernisation, and to escape the high inflation rate trap of the 1970s crisis, the USA embarked on a financial sector deregulation exercise, in the form of a chain of financial sector reforms, targeting both the banking institutions and the financial markets These reforms included, but were not limited to: modernisation of the financial system – both in terms of clearing and settlement of transactions by banks and stock market trading systems; reducing financial repression; improving the legal, regulatory, judiciary and supervisory environments; rehabilitating the financial infrastructure; and restoring bank soundness. It brought the most significant changes to financial regulation in the USA since the post-Great Depression regulatory reform This legislative piece made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation’s financial services industry, including the stock market.
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