Nonlinear Relationship between Financial Development and Economic Growth: Evidence from Post Global Financial Crisis Panel Data

Elya Nabila Abdul Bahri (), Abu Hassan Shaari Mohd Nor (), Tamat Sarmidi () and Nor Hakimah Haji Mohd Nor ()
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Elya Nabila Abdul Bahri: Fakulti Ekonomi dan Pengurusan Universiti Kebangsaan Malaysia 43600 UKM Bangi Selangor MALAYSIA Faculty of Accounting and Management Universiti Tunku Abdul Rahman UTAR Sungai Long Campus Jalan Sungai Long 9 43000 Kajang Selangor
Abu Hassan Shaari Mohd Nor: Fakulti Ekonomi dan Pengurusan Universiti Kebangsaan Malaysia 43600 UKM Bangi Selangor MALAYSIA
Tamat Sarmidi: Fakulti Ekonomi dan Pengurusan Universiti Kebangsaan Malaysia 43600 UKM Bangi Selangor MALAYSIA
Nor Hakimah Haji Mohd Nor: Faculty of Management and Muamalah Kolej Universiti Islam Antarabangsa Selangor (KUIS) Bandar Seri Putra 43000 Kajang Selangor MALAYSIA

Jurnal Ekonomi Malaysia, 2018, vol. 52, issue 1, 15-30

Abstract: Existing studies find that the nonlinear relationship between financial development and economic growth is inverted U-shaped or there exist Kuznets curve, where financial development harm growth after surpassed the threshold point. The objective of this study is to re-estimate the existing relationship between financial development and economic growth for 65 developing countries for the period post 2007-2008 Global Financial Crisis starts from 2009-2015 using Generalized Method-of-Moment (GMM). Three financial development indicators namely, domestic credit to private sector (DCPS), liquid liabilities (LL) and private credit to deposit money (PCDM) are used in this study. However, our findings are contrary to the previous study. Interestingly, our result shows that the nonlinear relationship between financial development and economic growth is U-shaped for all indicators. In other words, financial development accelerated economic growth after reaching the turning point. The results of U-test of Lind and Mehlum (2010) confirms that the U-shaped relationship exist. It shows that the higher financial development enhance the performance of economic growth. Thus, our results challenge the previous findings and recommend for policy review.

Keywords: Financial development; U-shaped; economic growth; nonlinear (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ukm:jlekon:v:52:y:2018:i:1:p:15-30

DOI: 10.17576/JEM-2018-5201-2

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