This paper reviews, appraises, and critiques theoretical and empirical research on the
connections between the operation of the financial system and economic growth. It describes
the role of financial system development in economic growth at the macro level, both
theoretically and empirically. It also describes briefly the relationship of corporate finance
and firm performance. It finally concludes the review and presents some policy implications
in view of the reviewed literature. Furthermore, theory and evidence imply that better
developed financial systems ease external financing constraints facing firms, which
illuminates one mechanism through which financial development influences economic
growth. The paper highlights many areas needing additional research.
