Financial Intermediation versus Direct Financing: A Meta-Analytic Comparison of the Growth-Enhancing Effect

Abstract

This study is the first meta-analysis to compare financial intermediation and direct financing in terms of their growth-promoting effects. Meta-synthesis of 1693 estimates extracted from 168 previous studies strongly suggest that, in general, financial development has a positive effect on economic growth and the synthesized effect size of the direct financing study exceeding that of the financial intermediation study. The two exceptions are when the average estimation year is limited to 1989 or before and when the target region is restricted to Latin America and the Caribbean. Results from meta- regression analysis and tests for publication selection bias show, however, that some synthesis results cannot be reproduced when literature heterogeneity and publication selection bias are taken into consideration.