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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. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
  2. 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.
  3. repec:fth:wobaco:1083 is not listed on IDEAS
  4. 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.
  5. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  6. Daron Acemoglu & Fabrizio Zilibotti, 1994. "Was Prometheus unbound by chance? Risk, diversification and growth," Economics Working Papers 98, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Jappelli, Tullio & Pagano, Marco, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 83-109, February.
  8. Xu, Zhenhui, 2000. "Financial Development, Investment, and Economic Growth," Economic Inquiry, Western Economic Association International, vol. 38(2), pages 331-44, April.
  9. 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.
  10. Obstfeld, Maurice, 1992. "Risk-Taking, Global Diversification, and Growth," CEPR Discussion Papers 688, C.E.P.R. Discussion Papers.
  11. repec:cup:macdyn:v:5:y:2001:i:3:p:413-33 is not listed on IDEAS
  12. 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.
  13. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  14. Aubhik Khan, 1999. "Financial development and economic growth," Working Papers 99-11, Federal Reserve Bank of Philadelphia.
  15. Michael B. Devereux & Gregor W. Smith, 1991. "International Risk Sharing and Economic Growth," Working Papers 829, Queen's University, Department of Economics.
  16. 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.
  17. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, vol. 51(2), pages 387-411, December.
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