The dual-financial-threshold effect in the “club convergence” of economic growth: a dynamic panel threshold model

Yang Song (), Dayu Liu () and Qiaoru Wang ()
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Yang Song: Southwestern University of Finance and Economics
Dayu Liu: Jilin University
Qiaoru Wang: Jilin University

Empirical Economics, 2021, vol. 61, issue 5, No 15, 2713-2737

Abstract: Abstract This paper revisits the “club convergence” of economic growth by taking imperfect credit market into account in the Schumpeterian growth models with technology transfer. It derives nonlinear relationships between financial development and economic growth via the dynamic evolution of technology gap. Using a dynamic panel threshold model, we find a dual-financial-threshold effect in the “club convergence” of economic growth which is highly consistent with theoretical conclusions. When a nation’s level of financial development is below the lower threshold value, the nation will not converge to the frontier growth rate, while the steady-state economic growth rate will strictly increase with the increased level. The probability of the convergence will considerably increase when the level lies between the lower and higher threshold values. The positive impact of the level on the steady-state relative output will gradually diminish with an obvious diminishing marginal utility, when the level is above the higher threshold value.

Keywords: Financial development; Threshold value; Club convergence; Technology gap (search for similar items in EconPapers)
JEL-codes: O16 O33 O47 O57 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s00181-020-01975-4

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