This paper, authored by Robert G. King and Ross Levine, explores the relationship between financial development and economic growth, supporting Joseph Schumpeter's view that financial intermediaries play a crucial role in stimulating long-run growth. The study examines data from approximately 80 countries over the period 1960-1989 and finds strong associations between various measures of financial development and both current and future rates of economic growth. Key findings include: 1. **Strong Correlations**: Various indicators of financial development, such as financial depth, the importance of banks relative to central banks, and the allocation of credit to private firms, are strongly correlated with economic growth. 2. **Precedence of Financial Development**: Financial development precedes economic growth. For example, financial depth in 1960 is significantly related to real per capita GDP growth over the next 30 years. 3. **Positive Impact on Growth Indicators**: Higher levels of financial development are associated with faster rates of economic growth, physical capital accumulation, and improvements in economic efficiency. 4. **Robustness of Results**: The relationships between financial development and growth are robust to various specification tests and sensitivity analyses. The paper concludes that the data support Schumpeter's view that financial services stimulate long-run growth by increasing capital accumulation and improving resource allocation efficiency. However, the authors emphasize the need for further research to identify specific policies that can enhance financial development and promote economic growth.This paper, authored by Robert G. King and Ross Levine, explores the relationship between financial development and economic growth, supporting Joseph Schumpeter's view that financial intermediaries play a crucial role in stimulating long-run growth. The study examines data from approximately 80 countries over the period 1960-1989 and finds strong associations between various measures of financial development and both current and future rates of economic growth. Key findings include: 1. **Strong Correlations**: Various indicators of financial development, such as financial depth, the importance of banks relative to central banks, and the allocation of credit to private firms, are strongly correlated with economic growth. 2. **Precedence of Financial Development**: Financial development precedes economic growth. For example, financial depth in 1960 is significantly related to real per capita GDP growth over the next 30 years. 3. **Positive Impact on Growth Indicators**: Higher levels of financial development are associated with faster rates of economic growth, physical capital accumulation, and improvements in economic efficiency. 4. **Robustness of Results**: The relationships between financial development and growth are robust to various specification tests and sensitivity analyses. The paper concludes that the data support Schumpeter's view that financial services stimulate long-run growth by increasing capital accumulation and improving resource allocation efficiency. However, the authors emphasize the need for further research to identify specific policies that can enhance financial development and promote economic growth.