Finance and growth: an overview The empirical literature on finance and growth has accumulated a substantial body of evidence on the positive relationship between financial development and long-term economic growth over the past 20 years. From the academic literature, we have learned that countries with higher levels of financial development grow at a faster rate.
Industries which have a greater need for external finance and face better growth opportunities grow faster in countries with a higher level of financial development.1 This positive effect has a well-known microeconomic underpinning: financial deepening alleviates financing constraints at the firm level, allowing firms to grow by engaging in higher capital investment and R&D investment, among other things.2 This large body of evidence strongly supports the view that by inducing a positive resource reallocation and by supporting the creative destruction-driven process of technological innovation, financial deepening has a transformational effect on the real economy.