Untangling the finance-growth nexus: The dual role of financial development in the transmission of shocks

Ricardo Montañez-Enríquez, Matias Ossandon Busch and Manuel Ramos-Francia
Authors registered in the RePEc Author Service: Manuel Ramos Francia

Emerging Markets Review, 2024, vol. 63, issue C

Abstract: Does financial development shield countries from the pass-through of financial shocks to real outcomes? We evaluate this question by characterizing the probability density of GDP growth conditional on foreign and domestic financial stress indicators in a panel of 24 emerging countries. Our robust results unveil a previously unexplored dual impact of higher degrees of financial development on the transmission of financial stress: while the effect of global factors is attenuated, the impact of domestic factors is exacerbated. This result highlights a previously unexplored channel through which financial development can alter the link between financial (in)stability and GDP growth.

Keywords: Economic growth; Financial stability; Financial development; Emerging countries; Growth at risk (search for similar items in EconPapers)
JEL-codes: G01 G15 O16 O43 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:63:y:2024:i:c:s1566014124000876

DOI: 10.1016/j.ememar.2024.101192

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