Financial development and Post Keynesian economic growth: advancing theoretical and empirical grounds

Abstract

Over the last couple of decades, a great deal of attention has been paid to the role of financial markets in economic growth. In recent studies the importance of financial markets has been highlighted and financial systems have been recognised via their increasing influence over real sector development. However, most of these studies fail to adequately integrate this relationship into a general macro economic model. "Since the writings of John Stuart Mill, many economists have argued either that finance is unimportant or that it matters most when it gets out of order" Caprio (1998). Generations of economists constructed models without money or a financial sector. However, with the explosion of banking crises around the globe in the last two decades, finance is back in fashion.