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Non‐linear finance–growth nexus

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  • Ho‐Chuan Huang
  • Shu‐Chin Lin

Abstract

This paper revisits the question of whether the finance–growth nexus varies with the stages of economic development. Using a novel threshold regression with the instrumental variables approach proposed by Caner and Hansen (2004) to the dataset used in Levine et al. (2000) we detect overwhelming evidence in support of a positive linkage between financial development and economic growth, and this positive effect is larger in the low‐income countries than in the high‐income ones. The data also reveal that financial development tends to have stronger impacts on capital accumulation and productivity growth in the low‐income countries than in the high‐income ones. The findings are robust to alternative financial development measures and conditioning information sets.

Suggested Citation

  • Ho‐Chuan Huang & Shu‐Chin Lin, 2009. "Non‐linear finance–growth nexus," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(3), pages 439-466, July.
  • Handle: RePEc:bla:etrans:v:17:y:2009:i:3:p:439-466
    DOI: 10.1111/j.1468-0351.2009.00360.x
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    File URL: https://doi.org/10.1111/j.1468-0351.2009.00360.x
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