Financial development and economic growth: A review

Abstract

The relationship between financial development and economic growth has been subject to the considerable debate
in the literature of development and growth. While empirical studies often provide a direct relationship between
financial development proxies and growth, much controversy remains about how these results should be
interpreted. The study, therefore, discusses four main sources of controversy, namely: the selection and
measurement of financial development indicators, the causality direction of the financial development and
economic growth, the use of empirical approaches to the finance-growth hypothesis, and the debate concerning the
channels by which financial development promotes economic growth.