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Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries

Nahla Samargandi (), Jan Fidrmuc and Sugata Ghosh ()

World Development, 2015, vol. 68, issue C, 66-81

Abstract: We revisit the relationship between financial development and economic growth in a panel of 52 middle-income countries over the 1980–2008 period. Using pooled mean group estimations in a dynamic heterogeneous panel setting, we show that there is an inverted U-shaped relationship between finance and growth in the long run. In the short run, the relationship is insignificant. This suggests that too much finance can exert a negative influence on growth in middle-income countries. The finding of a non-monotonic effect of financial development on growth is confirmed by estimating a threshold model.

Keywords: financial development; economic growth; pooled mean group estimation; dynamic panel threshold; non-monotonicity (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:68:y:2015:i:c:p:66-81

DOI: 10.1016/j.worlddev.2014.11.010

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