Does financial deepening matter for economic growth in Asian economies? Fresh evidence from panel threshold analysis

Suman Dahiya

Global Business and Economics Review, 2022, vol. 27, issue 2, 192-208

Abstract: Considering the importance of a developed financial system in the development of a nation, the present study explores the link of economic growth with financial deepening in the context of Asian economies with annual data over the period 1999 to 2018. This study is using a new index of financial development proposed by the International Monetary Fund (IMF) in the year 2016. It also examines the nonlinearity of the relationship using panel threshold regression. Estimation results find a single threshold (0.1456) effect in the financial deepening-growth nexus. The results reveal that financial deepening enhances growth in those countries where it is above the threshold value, whereas the role of financial deepening in the growth vanishes in countries where this value is below the threshold. It shows that the financial system can contribute to the growth of an economy once it exceeds the threshold level of deepening. Therefore, policymakers in the below threshold region should design and implement policies that will deepen their financial system to boost economic growth.

Keywords: financial deepening; economic growth; Asian region; two-stage least square; 2SLS; panel threshold regression. (search for similar items in EconPapers)
Date: 2022
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