Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/74794
Authors: 
Herwartz, Helmut
Walle, Yabibal M.
Year of Publication: 
2013
Series/Report no.: 
Discussion Papers, Center for European Governance and Economic Development Research 156
Abstract: 
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.
Subjects: 
finance-growth nexus
financial development
economic growth
functional coefficient model
JEL: 
C14
C33
O16
G28
Document Type: 
Working Paper

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