How much do we really know about growth and finance?

During the past twenty-five years, development economists have made a major shift toward a more mainstream, market-oriented approach to the financial sector. Economists now take for granted that a well-developed financial sector contributes to economic growth. But until recently there was surprisingly little solid evidence to support this view. ; This article assesses the econometric evidence about the finance-growth relationship. The author first describes the regression framework that has become the standard for assessing this relationship. He outlines some methodological reservations about the evidence used to establish this consensus, pointing out the drawbacks of using aggregate measures of activity. ; Over the last decade, a large body of empirical work using this framework has provided results that relate different dimensions of financial sector development to economic growth. The observed relationships in these studies appear convincingly to be causal, from finance to growth, and not the result of simultaneity or reverse causality. However, the author points out, the literature has not yet adequately explained what happens when the financial sector deepens or how that deepening affects behavior and economic growth. ; Research so far provides policymakers little guidance about how best to develop the financial sector or about the optimal sequence of developments. But the next generation of research has already begun to delve into the "black box." The author discusses a few of these studies that attempt to show how financial deepening effects are transmitted into the real sector.Finance ; Economic development ; Income distribution ; Financial institutions

Large deviations for sums defined on a Galton-Watson process

In this paper we study the large deviation behavior of sums of i.i.d. random variables X_i defined on a supercritical Galton-Watson process Z. We assume the finiteness of the moments EX_1^2 and EZ_1log Z_1. The underlying interplay of the partial sums of the X_i and the lower deviation probabilities of Z is clarified. Here we heavily use lower deviation probability results on Z we recently published in [FW06]

Local asymptotics for the area under the random walk excursion

We study tail behaviour of the distribution of the area under the positive excursion of a random walk which has negative drift and light-tailed increments. We determine the asymptotics for local probabilities for the area and prove a local central limit theorem for the duration of the excursion conditioned on the large values of its area.Comment: 22 page