Financial development and economic growth: The role of stock markets

Utilizing time series methods and data from five developed economies, we examine the relationship between stock market development and economic growth, controlling for the effects of the banking system and stock market volatility. Our results support the view that, although both banks and stock markets may be able to promote economic growth, the effects of the former are more powerful. They also suggest that the contribution of stock markets on economic growth may have been exaggerated by studies that utilize cross-country growth regressions.