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Is the Financial Development and Economic Growth Relationship Nonlinear?

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Author Info
Elena Ketteni (University of Cyprus)
Theofanis P. Mamuneas () (University of Cyprus)
Thanasis Stengos () (Department of Economics, University of Guelph)
Andreas Savvides (Oklahoma State University)

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Abstract

We study the relationship between financial development and economic growth to explore possible nonlinearities. We use the same data set as previous researchers but employ nonparametric estimation techniques. We find that, in contrast to recent research, the finance-growth relationship is linear when the previously documented nonlinearity between initial per capita income and human capital, on the one hand, and economic growth, on the other, is taken into account. When these nonlinearities are ignored, the finance-growth relationship appears nonlinear.

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Publisher Info
Paper provided by University of Guelph, Department of Economics in its series Working Papers with number 0501.

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Length: 23 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:gue:guelph:2005-1

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Related research
Keywords: Cross Country Growth Regressions; Financial Development; Semiparametric Additive Linear Model.;

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Find related papers by JEL classification:
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Felix Rioja & Neven Valev, 2004. "Finance and the Sources of Growth at Various Stages of Economic Development," Economic Inquiry, Oxford University Press, vol. 42(1), pages 127-140, January. [Downloadable!] (restricted)
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  2. Kalaitzidakis, P. & Mamuneas, T.P. & Savvides, A. & Stengos, T., 2000. "Measures of Human Capital and Nonlinearities in Economic Growth," Working Papers 2000-5, University of Guelph, Department of Economics.
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  3. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December. [Downloadable!] (restricted)
  4. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  5. J. Fan & W. H"Ardle & E. Mammen, . "Direct estimation of low dimensional components in additive models," Sonderforschungsbereich 373 1996-17, Humboldt Universitaet Berlin.
  6. Fan, Y. & Li, Q. & Stengos, T., 1992. "Root-Consistent Semiparametric Regression with Conditionally Heteroskedastic Disturbances," Working Papers 1992-17, University of Guelph, Department of Economics.
  7. Mamuneas, T.P. & Savvides, A. & Stengos, T., 2002. "Economic Development and the Return to Human Capital: A Smooth Coefficient Semiparametric Approach," Working Papers 2002-14, University of Guelph, Department of Economics. [Downloadable!]
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  8. Adonis Yatchew, 1998. "Nonparametric Regression Techniques in Economics," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 669-721, June. [Downloadable!] (restricted)
  9. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, vol. 56(4), pages 931-54, July. [Downloadable!] (restricted)
  10. Liu, Zhenjuan & Stengos, Thanasis, 1999. "Non-linearities in Cross-Country Growth Regressions: A Semiparametric Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 527-38, Sept.-Oct. [Downloadable!]
  11. Deidda, Luca & Fattouh, Bassam, 2002. "Non-linearity between finance and growth," Economics Letters, Elsevier, vol. 74(3), pages 339-345, February. [Downloadable!] (restricted)
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  12. Rioja, Felix & Valev, Neven, 2004. "Does one size fit all?: a reexamination of the finance and growth relationship," Journal of Development Economics, Elsevier, vol. 74(2), pages 429-447, August. [Downloadable!] (restricted)
  13. repec:att:wimass:199419r is not listed on IDEAS
  14. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June. [Downloadable!] (restricted)
  15. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August. [Downloadable!] (restricted)
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  16. Benhabib, Jess & Spiegel, Mark M, 2000. " The Role of Financial Development in Growth and Investment," Journal of Economic Growth, Springer, vol. 5(4), pages 341-60, December. [Downloadable!] (restricted)
  17. W. H"Ardle & O. Linton, . "Nonparametric Regression," Sonderforschungsbereich 373 1995-29, Humboldt Universitaet Berlin.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. James B. Ang, 2007. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Monash Economics Working Papers 03/07, Monash University, Department of Economics. [Downloadable!]
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