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Revisiting the link between financial development and industrialization: evidence from low and middle income countries

Author

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  • Gouthami Kothakapa

    (Indian Institute of Technology Tirupati)

  • Samyukta Bhupatiraju

    (University of Hyderabad)

  • Rahul A. Sirohi

    (Indian Institute of Technology Tirupati)

Abstract

The paper uses a dynamic panel model to analyze the relationship between financial development and industrialization in the context of low and middle income countries between 1970 and 2014. The results indicate that the relationship between the two is non-linear. More precisely, the results indicate that financial development has a negative effect on industrial development up to a point, after which the effect turns positive. This evidence of a “U-shaped” relationship emphasizes the centrality of financial development in the industrialization process in developing economies, but it also points to the complex nature of the relationship.

Suggested Citation

  • Gouthami Kothakapa & Samyukta Bhupatiraju & Rahul A. Sirohi, 2021. "Revisiting the link between financial development and industrialization: evidence from low and middle income countries," Annals of Finance, Springer, vol. 17(2), pages 215-230, June.
    • Handle: RePEc:kap:annfin:v:17:y:2021:i:2:d:10.1007_s10436-020-00376-y
    DOI: 10.1007/s10436-020-00376-y
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    More about this item

    Keywords

    Financial development; Industrialization; Non-monotonicity; Low and middle income countries;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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