Arbeitspapier

State dependence in the finance-growth nexus: A functional coefficient approach

Noting that 'one size does not fit all' in the case of the finance-growth (FG) nexus, a growing body of literature has recently focused on uncovering economic conditions under which financial development could be beneficial (detrimental) to economic development. We look into these conditions by means of a flexible semiparametric approach which allows the long-run FG nexus to depend on measurable economic states. Using annual data for 74 economies spanning the period 1975-2005, we find that the level of financial development shows a strong positive impact on the FG nexus. Moreover, although the impact of finance on growth is generally higher in high-income economies, allowing for intra-group variations reveals scenarios where the impact could be higher in low-income economies. However, the FG link could also be negative if low- and lower-middle-income economies have very large governments or are extremely open to international trade.

Language
Englisch

Bibliographic citation
Series: cege Discussion Papers ; No. 156

Classification
Wirtschaft
Semiparametric and Nonparametric Methods: General
Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models
Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Financial Institutions and Services: Government Policy and Regulation
Subject
finance-growth nexus
financial development
economic growth
functional coefficient model

Event
Geistige Schöpfung
(who)
Herwartz, Helmut
Walle, Yabibal M.
Event
Veröffentlichung
(who)
University of Göttingen, Center for European, Governance and Economic Development Research (cege)
(where)
Göttingen
(when)
2013

Handle
Last update
20.09.2024, 8:25 AM CEST

Data provider

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Object type

  • Arbeitspapier

Associated

  • Herwartz, Helmut
  • Walle, Yabibal M.
  • University of Göttingen, Center for European, Governance and Economic Development Research (cege)

Time of origin

  • 2013

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