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Financial development and economic growth: Evidence of non-linearity

Djeneba Doumbia

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores the non-linear relationship between financial development and economic growth. It mainly relies on the Panel Smooth Transition Regression (PSTR) model of Gonzalés et al. (2005) and three metrics of financial development to endogenously assess the impact of financial development on growth. Using a sample of 43 advanced and developing economies over the period 1975–2009, the paper highlights that financial development supports economic growth in low-income and lower middle income countries by enhancing saving and investment behaviour. However, in more developed economies, the impact of financial development is nil or negative, reflecting that further credit provisioning in these economies tend to exacerbate financial vulnerabilities, which is detrimental to growth.

Keywords: Financial Development; Economic Growth; Non-linearity; System GMM; PSTR (search for similar items in EconPapers)
JEL-codes: C33 O11 O16 O47 (search for similar items in EconPapers)
Date: 2015-01-31
New Economics Papers: this item is included in nep-fdg and nep-gro
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https://mpra.ub.uni-muenchen.de/63983/1/MPRA_paper_63983.pdf revised version (application/pdf)

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