It has been argued that efficient financial systems promote innovations; hence, better finance leads to faster growth (Schumpeter, 1969). This argument has been countered by assertions that the causality is reversed; economies with good growth prospects develop institutions to provide the funds necessary to support those good prospects (Robinson, 1952). In other words, the economy leads and finance follows.
Recent theoretical developments have fleshed out two ways that good financial systems can lead to growth. Financial markets can matter by affecting the volume of savings available for investment and by increasing the productivity or quality of that investment.