Well-functioning banks or other financial intermediaries such as venture capital funds also spur technological innovation by identifying and funding entrepreneurs who are perceived to have the best chances of developing new products successfully and for implementing innovative production processes. Recent research has provided robust evidence supporting the view that financial development contributes to economic growth.
BIS Review 15/2006  1  At the cross-country level, various measures of financial development (including measures of financial sector assets, domestic credit to private sectors and stock market capitalization) are found to be positively related to economic growth. Other studies establish a positive relationship between financial development and growth at the industry level (Rajan and Zingales, 1998).