Arbeitspapier

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

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.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 4743

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

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

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Samargandi, Nahla
  • Fidrmuc, Jan
  • Ghosh, Sugata
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 2014

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