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

By Nahla Samargandi, Jan Fidrmuc, Sugata Ghosh. Social Science Research Network, 2015

593 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Information Systems

View Paper: https://www.semanticscholar.org/paper/270fb80425358dd111d784ada3eb968dfdc332a2

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Citations in the corpus

Nexus between Financial Development, Renewable Energy Consumption, Technological Innovations and CO2 Emissions: The Case of India (2021, methodology): “Previous research indicated that the ECM (t−1) must be negative, with a value ranging from 0 to −2 [44,87].”
How do financial globalization, institutions and economic growth impact financial sector development in European countries? (2020, background): “In a similar vein, Samargandi et al. (2015) made their recent empirical revisiting attempt on the linkage between financial development and economic growth in a panel of 52 middle-income countries over the 1980-2008 period.”
Economic growth, financial development and trade openness in Nigeria: An application of the ARDL bound testing approach (2016, methodology): “Samargandi, Fidrmuc, and Ghosh (2015) used pooled mean group estimation techniques in a dynamic heterogeneous panel setting to re-examine the connections between economic growth and financial development for a panel of 52 middle-income economies for a period covering 1980–2008, and observed that…”
The relationship between financial development and economic growth during the recent crisis: Evidence from the EU (2019, background): “, 2010), empirical studies that used time-series or panel data models arrived at a less uniform conclusion (Arestis et al., 2001; Demetriades, 1996; Levine, 1999; Caporale et al., 2015; Samargandi et al., 2015; Bumann et al., 2013).”
Caught in the Middle? The Economics of Middle-Income Traps (2017, unknown): “Indeed, there is growing evidence on the existence of “too much finance,” as documented by Law and Singh (2014), Cecchetti and Kharroubi (2015), Sahay et al. (2015), and Samargandi et al. (2015).”
Financial development and economic growth: Evidence from a panel of 16 African and non-African low-income countries (2018, background): “A similar study by Samargandi, Fidrmuc, and Ghosh (2015), using threshold effect, analyzed finance-growth nexus in a panel of 52 middleincome countries over the period 1980–2008.”