The impact of financial development on income convergence: An application of two exogenous growth models

Omid Ranjbar and Farhad Rassekh

International Review of Economics & Finance, 2017, vol. 50, issue C, 65-74

Abstract: The literature has established that financial institutions and financial markets have a significant impact on economic growth. The present paper seeks to determine whether they increase the speed of convergence towards the steady-state income. If so, then financial development is a convergence factor in addition to being a growth factor. To carry out our study, we employ the growth model of Ramsey-Cass-Koopman as well as that of Diamond. The RCK model predicts financial development positively affects the speed of convergence while the Diamond model predicts only a level effect. Our empirical analysis supports the prediction of the RCK model.

Keywords: Financial development; Economic growth; Income convergence (search for similar items in EconPapers)
JEL-codes: F4 O4 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:50:y:2017:i:c:p:65-74

DOI: 10.1016/j.iref.2017.03.028

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