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Non-linearity between finance and growth

  • Deidda, Luca
  • Fattouh, Bassam

We present a simple model which establishes a non linear and possibly non monotonic relationship between financial development and economic growth. Applying a threshold regression model to King and Levine™s (1993) data set, we find evidence that is consistent with the main implications stemming from the theoretical model.

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File URL: http://www.sciencedirect.com/science/article/B6V84-44YVH20-9/2/f1cd349a8b551a3cb6ae75904b68002a
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 74 (2002)
Issue (Month): 3 (February)
Pages: 339-345

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Handle: RePEc:eee:ecolet:v:74:y:2002:i:3:p:339-345
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. 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.
  2. Jappelli, Tullio & Pagano, Marco, 1992. "Saving, Growth and Liquidity Constraints," CEPR Discussion Papers 662, C.E.P.R. Discussion Papers.
  3. Panicos O. Demetriades & Khaled A.Hussein, 1995. "Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries," Keele Department of Economics Discussion Papers (1995-2001) 95/13, Department of Economics, Keele University.
  4. Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 709-51, August.
  5. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
  6. Greenwood, J. & Jovanovic, B., 1990. "Financial Development, Growth, And The Distribution Of Income," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9002, University of Western Ontario, The Centre for the Study of International Economic Relations.
  7. repec:cup:macdyn:v:5:y:2001:i:3:p:413-33 is not listed on IDEAS
  8. Khan, Aubhik, 2001. "Financial Development And Economic Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 5(03), pages 413-433, June.
  9. Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers 1015, Cowles Foundation for Research in Economics, Yale University.
  10. Bruce E. Hansen, 1996. "Sample Splitting and Threshold Estimation," Boston College Working Papers in Economics 319., Boston College Department of Economics, revised 12 May 1998.
  11. Michael B. Devereux & Gregor W. Smith, 1991. "International Risk Sharing and Economic Growth," Working Papers 829, Queen's University, Department of Economics.
  12. Maurice Obstfeld., 1993. "Risk-Taking, Global Diversification, and Growth," Center for International and Development Economics Research (CIDER) Working Papers C93-016, University of California at Berkeley.
  13. Xu, Zhenhui, 2000. "Financial Development, Investment, and Economic Growth," Economic Inquiry, Western Economic Association International, vol. 38(2), pages 331-44, April.
  14. Robert B. Davies, 2002. "Hypothesis testing when a nuisance parameter is present only under the alternative: Linear model case," Biometrika, Biometrika Trust, vol. 89(2), pages 484-489, June.
  15. L. Deidda, 2001. "Financial Institutions' Expertise and Growth Effects of Financial Liberalisation," Working Paper CRENoS 200105, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  16. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-30, March.
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