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Convergence Patterns in Financial Development: Evidence from Club Convergence

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  • Nicholas Apergis

    ()
    (Department of Banking and Financial Management, University of Piraeus)

  • Christina Christou

    ()
    (Department of Banking and Financial Management, University of Piraeus)

  • Stephen M. Miller

    ()
    (Department of Economics, University of Nevada, Las Vegas)

Abstract

This paper analyzes the degree of convergence of financial development for a panel of 50 countries. We apply the methodology of Phillips and Sul (2007) to various financial development indicators to assess the existence of convergence clubs. We consider nine such indicators that various researchers use to proxy for the degree of financial development in countries. Overall, the results do not support the hypothesis that all countries converge to a single equilibrium state in financial development. Nevertheless, strong evidence exists of club convergence. Countries demonstrate a high degree of convergence in the sense that they form only two or three converging clubs, depending on the measure of financial development used. We then apply the Phillip-Sul method to per capita output and also find strong evidence of seven distinct convergence clubs in per capita output. Finally, we compare the various convergence clubs associated with financial development indicators to those clubs for per capita output. We conclude that strong evidence supports the correspondence between the convergence clubs for financial development and those for per capita output.

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File URL: http://web.unlv.edu/projects/RePEc/pdf/1104.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by University of Nevada, Las Vegas , Department of Economics in its series Working Papers with number 1104.

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Length: 40 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:nlv:wpaper:1104

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Keywords: economic growth; financial development; convergence clustering approach; financial indicators;

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