Edited by Thorsten Beck and Ross Levine
Is finance an important driver for the development and growth of the real economy in the United States or is it rather a negative rent-seeking force that impedes growth and prosperity? Most academics believe that finance boosts the economy, while society often has a very different view. This chapter reviews the academic research on the issue, contributes to the debate, and demonstrates that for the most part, at the margin, finance has a positive effect on the US economy. In most but not all cases, exogenous or instrumentable events demonstrate that private debt, public debt, private equity, and public equity contribute favorably to real economic outcomes in the United States. The evidence also suggests some conclusions about regulation and provides some future research avenues.
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