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

Arbeitspapier

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 estimator in a dynamic heterogeneous panel setting. We show that financial development does not have a linear positive long-run impact on economic growth in this sample. When we consider a non-linear relationship between financial development and growth, we find an inverted U-shaped relationship between finance and growth in the long run. In the short-run, the relationship is insignificant. This finding suggests that middle income countries face a threshold point after which financial development no longer contributes to economic growth.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 4743

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Macroeconomic Analyses of Economic Development ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance ; Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
• Subject: financial development ; economic growth ; heterogeneous panels ; pooled mean group estimation ; non-monotonicity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Samargandi, Nahla ; Fidrmuc, Jan ; Ghosh, Sugata
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/96840
• Last update: 10.03.2025, 11:43 AM CET