Financial development and economic growth: Current issues of theory and practice of research

The article contains an analysis of theoretical and empirical research on the relationship between financial and economic development, that have been accumulated since the beginning of the 20th century. The diversity of concepts in the absence of a recognized theory of economic growth, and the rapid evolution of financial market make this issue still relevant. The empirical research is based on the theories which were developed at least 30 years ago and they don’t include a number of modern trends (a multiple increase in financial innovation, the dominance of global markets, sectoral polarization of economies and contraction of the real sector in a number of countries). This leaves gaps in understanding the mechanisms of financial market impact on economic growth, increases the diversity of results. The purpose of this work is to systemize the ideas around financial market influence on economic growth that have been established in theory and practice to form an objective picture of what was happening, as well as to identify the actual ways of theoretical concepts renewal, to prepare recommendations for improving analytical approaches. Using the methods of analytical grouping, meaningful and evolutionary analysis: databases of theoretical (25 for 1911—2000s) and empirical (71 for 1993—2023) works have been formed (by groups of financial market influence); the evolution of theoretical concepts and endogenous economic-mathematical models of economic growth based on financial development has been considered; a factor analysis of empirical studies by 11 essential parameters has been carried out. According to the results, the influence of financial market on economic growth is not universal and varies across countries. The increased diversity of research results is associated with a decrease in their accuracy due to: emergence of new mechanisms of the financial market influence on economic growth; failure to take into account differences in sectoral structures of economies; dependence of empirical research on external factors not related to the hypothesis being tested (9 out of 11 reviewed). Conclusions and recommendations are provided: on the need to rethink of the theoretical concepts, on improving the quality of empirical studies; on the importance of accumulating a new body of empirical data around the impact of the financial market on economic growth at the present stage.

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