Assessing the Role of Financial Development in Driving Economic Growth: The Case of G7 Countries
Keywords:
Financial Development, Economic Growth, Panel Data Analysis, Generalized Method of MomentsAbstract
The study explores the effects of financial development on economic growth in G7 countries for the period 2005-2024. VM's central explanatory variable is the bank-based financial development index (FD) from the IMF, but also includes control variables, including R&D expense, gross capital maintenance (GCF), and the human development index (HDI). The Generalized Method of Moments (GMM) approach is used to control for potential endogeneity and to provide robust estimates. Results indicate that financial development has a positive and significant impact on economic growth. The bonding for control variables, R&D, GCF and HDI, are still positive as well, which implies the significance of innovation, investment and human capital. These results imply that developing the financial system and its related sectors can contribute to sound economic growth in advanced countries.
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