Is the Relationship between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle Income Countries

Nahla Samargandi (), Jan Fidrmuc and Sugata Ghosh

No 4743, CESifo Working Paper Series from CESifo

Abstract: We revisit the relationship between financial development and economic growth in a panel of 52 middle income countries over the 1980-2008 period, using pooled mean group estimator in a dynamic heterogeneous panel setting. We show that financial development does not have a linear positive long-run impact on economic growth in this sample. When we consider a non-linear relationship between financial development and growth, we find an inverted U-shaped relationship between finance and growth in the long run. In the short-run, the relationship is insignificant. This finding suggests that middle income countries face a threshold point after which financial development no longer contributes to economic growth.

Keywords: financial development; economic growth; heterogeneous panels; pooled mean group estimation; non-monotonicity (search for similar items in EconPapers)
JEL-codes: C23 O11 O16 O47 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Related works:
Journal Article: Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4743

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