Banks, capital markets and uncertainty: Consequences for economic growth.

摘要

This thesis provides theoretical and empirical analyses of the uncertainty associated with capital market investment in the context of economic growth. First, it develops an overlapping generations (OLG) model framework, comprising both banks and capital markets, that can be used to endogenously examine the influence of capital market return uncertainty on the finance-growth relationship. It explicitly derives the equilibrium allocation of resources and resultant economic growth for a 'deterministic' set-up (that assumes zero capital market return variances) and provides a framework and partial results for the 'stochastic' optimization extension (that relaxes this assumption).; Second, it uses US industry-level data between 1982 and 2002 to statistically establish the beta distribution as an appropriate modeling distribution that can capture the interplay between risk and return inherent in capital market investment. This result can be used for the optimization exercise in future extensions of the stochastic OLG model. Finally, it empirically investigates the nature of the relationship between stock market volatility and economic growth and introduces an alternative indicator of stock market development, namely, 'returns per unit risk'. To this end, using samples from a broad database of over two hundred countries for the period 1960--2002, it first provides evidence of relatively high levels of stock market volatility co-existing with low levels of economic growth in some countries and high levels of growth in others, even after controlling for the concomitant levels of wealth and financial development indicators. In contrast, 'returns per unit risk', that looks at volatility, not by itself, but in conjunction with capital market returns, is shown to have a strongly positive and statistically significant relationship with economic growth.