Abstract
The level of financial development is a key factor influencing long-term economic growth. A high level of financial development allows for the effective diversification of risk and allocation of capital, which, in the long run, improves the growth prospects of an economy. Schumpeter (1911) was one of the first to highlight the importance of financial development as a determinant of economic growth. Recent empirical work supports this relationship (see Beck & Levine, 2002; Levine, 2004; Mishkin, 2007). For example, Levine (2004) summarizes the empirical evidence on financial development and economic growth and states that “the level of financial development is a good predictor of future rates of economic growth, capital accumulation and technological change” (Levine, 1997, p. 689).2 Thus, stock and forward markets spread knowledge about market expectations of factors and changes that are important for economic development (Lachmann, 1978).
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