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Financial structure on growth and volatility

Author

Listed:
  • Yeh, Chih-Chuan
  • Huang, Ho-Chuan (River)
  • Lin, Pei-Chien

Abstract

By applying the pooled mean group estimator to a large panel up to 40 countries over the 1960–2009 period, this study finds that financial structure is significantly cointegrated to both economic growth and its volatility. In particular, the relationship is positive in nature, suggesting that more market-based countries enjoy faster economic growth but suffer more from economic fluctuations in the long run. Accordingly, in sharp contrast to the existing evidences, we conclude that the architecture of an economy's financial system matters for real sector performance. Moreover, the findings are robust to a variety of sensitivity checks, including the problem of endogeneity, the use of different financial structure (and growth volatility) indicators, the inclusion of extra growth (volatility) determinants, and the control of cross-sectional dependence in the panel data.

Suggested Citation

  • Yeh, Chih-Chuan & Huang, Ho-Chuan (River) & Lin, Pei-Chien, 2013. "Financial structure on growth and volatility," Economic Modelling, Elsevier, vol. 35(C), pages 391-400.
  • Handle: RePEc:eee:ecmode:v:35:y:2013:i:c:p:391-400
    DOI: 10.1016/j.econmod.2013.07.034
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Feng Wei & Yu Kong, 2016. "Financial Development, Financial Structure, and Macroeconomic Volatility: Evidence from China," Sustainability, MDPI, Open Access Journal, vol. 8(11), pages 1-20, November.
    2. repec:eee:empfin:v:44:y:2017:i:c:p:108-124 is not listed on IDEAS
    3. repec:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1142-0 is not listed on IDEAS
    4. Emiel van Bezooijen & Jacob Bikker, 2017. "Financial structure and macroeconomic volatility: a panel data analysis," DNB Working Papers 568, Netherlands Central Bank, Research Department.
    5. repec:bof:bofitp:urn:nbn:fi:bof-201505061169 is not listed on IDEAS
    6. Mikhail Stolbov, 2017. "Causality between credit depth and economic growth: evidence from 24 OECD countries," Empirical Economics, Springer, vol. 53(2), pages 493-524, September.

    More about this item

    Keywords

    Financial structure; Economic growth; Growth volatility; Pooled mean group estimator;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - 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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