Several different econometric methodologies have been employed to uncover this finance and growth nexus. For stock market activity, market capitalization to GDP, the ratio of value of shares traded either to GDP or total capitalization-both measures of the turnover of market activity-have also been used. For the banking sector, the ratio of liquid liabilities to GDP, or M2 to GDP, and of private sector credit to GDP. In order to measure financial depth, several indicators have been used. The empirical literature progressed in tandem, providing widespread evidence that financial depth-the extent to which an economy is making use of bank intermediation and financial market activity-is associated with higher rates of economic growth. Through these functions, a country providing an environment conducive to greater financial development would have higher growth rates, with much of the effect coming through greater productivity rather than a higher overall rate of investment. As the literature progressed, it began to recognize that the financial system in general-not exclusively banks-performed four basic functions essential to economic development and growth: mobilization of savings, allocation of resources to productive uses, facilitating transactions and risk management, and exerting corporate control. On the theoretical side, early work by McKinnon (1973) and Goldsmith (1969), among others, highlighted the key role in economic development that could be played by a banking system free of the types of controls on interest rates and quantities that were prevalent at the time. As surveyed first by Levine (1997a), then by Demirguc-Kunt and Levine ( 2008, 2009), there is a vast literature showing the benefits that accrue to countries in which financial development is greater. It is well established that a vibrant, dynamic, and well-functioning financial sector leads to a host of improved economic outcomes.

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