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Inflation and the finance-growth nexus

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  • Huang, Ho-Chuan
  • Lin, Shu-Chin
  • Kim, Dong-Hyeon
  • Yeh, Chih-Chuan

Abstract

This paper re-investigates whether there exist inflation thresholds in the finance-growth linkage. By applying the Caner and Hansen's (2004) instrumental-variable threshold regression approach to the dataset of Levine et al. (2000), we find strong evidence of a nonlinear inflation threshold in the relationship, below which financial development exerts a significantly positive effect on economic growth, while, above which, the growth effect of finance appears to be insignificant. Furthermore, we also find a positive and significant relationship between finance and productivity for inflation rates below the threshold level, but no such relationship is detected for inflation rates above the critical level. This result suggests that finance influences growth mainly through the productivity channel.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 27 (2010)
Issue (Month): 1 (January)
Pages: 229-236

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Handle: RePEc:eee:ecmode:v:27:y:2010:i:1:p:229-236

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Financial development Economic growth Threshold regression Instrumental variable Inflation;

References

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Citations

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Cited by:
  1. Marques, Luís Miguel & Fuinhas, José Alberto & Marques, António Cardoso, 2013. "Does the stock market cause economic growth? Portuguese evidence of economic regime change," Economic Modelling, Elsevier, vol. 32(C), pages 316-324.
  2. Simplice A, Asongu, 2011. "Finance and growth: Schumpeter might be wrong in our era. New evidence from Meta-analysis," MPRA Paper 32559, University Library of Munich, Germany, revised 07 Feb 2013.
  3. Asongu, Simplice A, 2013. "Finance and growth: New evidence from Meta-analysis," MPRA Paper 52210, University Library of Munich, Germany.
  4. Pasali, Selahattin Selsah, 2013. "Where is the cheese ? synthesizing a giant literature on causes and consequences of financial sector development," Policy Research Working Paper Series 6655, The World Bank.

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