Abstract:
The relationship between financial development and economic growth is the crucial issues which could
grab economists and policy makers' attention to it. Financial market plays an essential role on each
economy, because it conducts funds to those individuals or firms which have productive investment
opportunities. If the financial system does not perform this role efficiently, the economic efficiency will
decrease and consequently economic growth will be barricaded. One of the main disturbing cases of
efficient financial system is asymmetric information. This paper tries to study the effect of financial
development and symmetric information on economic growth for whole European Union members. For
measuring the symmetric information, some proxies like ICT, IT and economic freedom components are
used. In order to have a separate model per country, Pooled Data model is applied in 2000-2012. The
results Show that financial development and symmetric information lead to a higher rate of economic
growth among European Union members.
Machine summary:
This paper tries to study the effect of financial development and symmetric information on economic growth for whole European Union members.
The results Show that financial development and symmetric information lead to a higher rate of economic growth among European Union members.
Goldsmith (1969), King and Levine, (1993) (1993b), and Usai and Vannini, (1995), Gurley and Shaw (1955, 1967) have done some empirical studies which focus on the relationship between financial development and real sector growth.
A large theoretical literature predicts that adverse selection and moral hazard may generate inefficient outcome in financial development and real markets due to asymmetric information (Arrow, 1963, Akerlof, 1970, Spence, 1973, Rothschild and Stiglitz, 1976, Wilson, 1977).
According to the main determinants of economic growth discussed already, a functional form of economic growth for each OECD country (i) at time t is specified as: GGDPit = f(GSTit, ICTit, PRit, Rit, SMit,FDIit, FTit, SGit) (1) The variables of the model are defined as follows: GGDP: growth of gross domestic product GST: growth of stock traded ICT: net export of ICT goods and services IT: summation of mobile cellular subscriptions, telephone lines and internet users (per 100 people) PR: legal system and property right R: regulation SM: sound money FDI: foreign direct investment FT: freedom of trade internationally SG: Size of government For evaluating the effects of financial sector growth and information symmetry on economic growth for the selected European Union members separately, pooled data model is applied.