 Beyond financial deepening: Rethinking the finance-growth relationship in an uneven worldEleonora Cavallaro () and Ilaria Villani Economic Modelling, 2022, vol. 116, issue C Abstract: Following the debate on the limits to financial deepening, we re-assess the finance-growth relationship employing a broad-based measure of financial development and controlling for the stability-enabling features of financial environments. We show that the marginal effect of financial development on growth differs for economies with uneven long-run growth patterns. We first identify endogenously multiple convergence clubs for a large panel of countries over 1995–2017; then, based on ordered logit estimations, we show that the probability of approaching a higher growth path, when the level of financial development is raised, depends on economies’ initial income, availability of skills, and institutions. Finally, running panel regressions we find that the marginal effect of financial development on growth is negative for high-income financially mature economies, positive for follower economies, insignificant for countries in low-growth traps. Overall, financial development spurs growth when economies take steps to enhance the inclusiveness, efficiency, and resilience of financial systems. Keywords: Financial development and growth; Financial resilience; Nonlinearities; Club convergence; Panel analysis (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:116:y:2022:i:c:s0264999322002498 DOI: 10.1016/j.econmod.2022.106009 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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