FINANCIAL SECTOR DEVELOPMENT AND ECONOMIC GROWTH: AN EMPIRICAL ANALYSIS OF DEVELOPING COUNTRIES

Using a panel data set for 35 developing countries over the period 19702003.this study analyzes the role of financial sector development ineconomic growth and domestic and foreign capital accumulation. Amajor finding of the study is that financial sector development affectsper capita GDP mainly through its role in efficient resource allocation,rather than its effects on capital accumulation. Furthermore.. it is thedomestic rather than foreign capita] accumulation that is instrumental inincreasing per worker output and hence promoting economic growth inthe long run. Furthermore.. foreign capital also does not stimulatedomestic capital accumulation.. while domestic capital plays a significantrole as a complementary factor for attracting foreign capital.