Asymmetric Impact of Financial Intermediary Development in Low- and High-Income Countries

Chi-Chun Yang and Ya-Kai Chang
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Chi-Chun Yang: Department of Accounting, National Taiwan University, No.1, Sec. 4, Roosevelt Rd., Taipei City 106, Taiwan
Ya-Kai Chang: Department of Finance, Chung Yuan Christian University, No. 200, Zhongbei Rd., Zhongli Dist., Taoyuan City 320, Taiwan

Sustainability, 2020, vol. 12, issue 15, 1-12

Abstract: This study uses the quantile regression method developed by Koenker and Bassett (1978) to examine the asymmetric effect of financial intermediary development on economic growth in low- and high-income countries. A three-sector neoclassical growth model composed of a representative family sector, production sector, and the financial intermediary sector is constructed, and the equilibrium solutions determine the variables employed in the empirical model. The empirical results reveal an asymmetric relationship between financial intermediary development and economic growth. Financial intermediary development is the main driving force of economic growth for high-income countries only, not for low-income countries. Overall, this study suggests that countries should not develop financial intermediaries indiscriminately in the pursuit of economic expansion, especially for low-income countries. Our empirical findings have important policy implications for regulators who are especially concerned about countries’ sustainable economic growth.

Keywords: three-sector endogenous growth model; quantile regression; financial intermediation; human capital; economic growth; sustainability (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
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