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Testing the finance-growth link: is there a difference between developed and developing countries?

  • Gilles Dufrenot

    ()

    (University of Aix-Marseille, DEFI, and CEPII)

  • Valerie Mignon

    ()

    (University of Paris Ouest, EconomiX-CNRS and CEPII)

  • Anne Peguin-Feissolle

    ()

    (GREQAM-CNRS)

We revisit the evidence of the existence of a long-run link between financial intermediation and economic growth, by testing of cointegration between the growth rate of real GDP, control variables and three series reflecting financial intermediation. We consider a model with a factor structure that allows us to determine whether the finance-growth link is due to cross countries dependence and/or whether it characterises countries with strong heterogeneities. We employ techniques recently proposed in the panel data literature, such as PANIC analysis and cointegration in common factor models. Our results show differences between the developed and developing countries. We run a comparative regression analysis on the 1980-2006 period and find that financial intermediation is a positive determinant of growth in developed countries, while it acts negatively on the economic growth of developing countries.

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File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I3-P164.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 3 ()
Pages: 1794-1807

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Handle: RePEc:ebl:ecbull:eb-10-00212
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  17. Jushan Bai & Serena Ng, 2001. "A PANIC Attack on Unit Roots and Cointegration," Boston College Working Papers in Economics 519, Boston College Department of Economics.
  18. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
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