The impact of the financial sector on economic development: Some cross-section evidence

Conclusion This paper has attempted to analyze the effect of the development of the financial sector, as reflected by the extent of financial deepening, in the economic development of countries. The Theoretical framework integrating financial growth to real growth is basically an adaptation of the Gurley-Shaw theory of finance in the development context, but with emphasis placed upon the supply-leading role of the financial sector. The empirical results of this study although not conclusive, indicate that financial deepening leads to a higher rate of capital accumulation and a higher level of per capita income. The lack of definitiveness of our evidence in support of the financial theory of economic development is due to a lack of comparable data on financial institutions, other than banks, for the different countries. Thus, although our study lends support to the supply-leading thesis, further judgement of the thesis must await more detailed empirical analyses.