Economists have long debated the question of which of the four principal transmission channels of financial development—ideas production, savings, fixed investment, and secondary and tertiary education—plays the biggest role in economic growth.
Previous research had largely focused on the channels of savings and investment, neglecting human capital and research and development as potential major drivers of growth.
Providing a different viewpoint is Assoc Prof James Ang from NTU’s School of Social Sciences, who constructed a unique macroeconomic data set based on 140 years of records from 21 member countries of the Organisation for Economic Co-operation and Development (OECD).
Assoc Prof Ang found evidence that the production of ideas followed by secondary and tertiary education are the channels through which financial development influences economic growth the most.
His findings suggest that researchers should focus on these two channels when looking at how financial development can boost economic growth.