IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Institutional quality thresholds and the finance – Growth nexus

Listed author(s):
  • Law, Siong Hook
  • Azman-Saini, W.N.W.
  • Ibrahim, Mansor H.

Using an innovative threshold estimation technique, this study examines whether the growth effect of financial development in countries with distinct levels of institutional development differs. The results demonstrate that there is a threshold effect in the finance-growth relationship. Specifically, we found that the impact of finance on growth is positive and significant only after a certain threshold level of institutional development has been attained. Until then, the effect of finance on growth is nonexistent. This finding suggests that the financial development-growth nexus is contingent on the level of institutional quality, thus supporting the idea that better finance (i.e., financial markets embedded within a sound institutional framework) is potent in delivering long-run economic development.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0378426613001544
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 12 ()
Pages: 5373-5381

as
in new window

Handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:5373-5381
DOI: 10.1016/j.jbankfin.2013.03.011
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Azman-Saini, W.N.W. & Law, Siong Hook & Ahmad, Abd Halim, 2010. "FDI and economic growth: New evidence on the role of financial markets," Economics Letters, Elsevier, vol. 107(2), pages 211-213, May.
  2. Thorsten Beck & Ross Levine, 2002. "Stock Markets, Banks, and Growth: Panel Evidence," NBER Working Papers 9082, National Bureau of Economic Research, Inc.
  3. Caner, Mehmet & Hansen, Bruce E., 2004. "Instrumental Variable Estimation Of A Threshold Model," Econometric Theory, Cambridge University Press, vol. 20(05), pages 813-843, October.
  4. Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics.
  5. Peter L. Rousseau & Paul Wachtel, 2005. "Economic Growth and Financial Depth: Is the Relationship Extinct Already?," Working Papers 05-15, New York University, Leonard N. Stern School of Business, Department of Economics.
  6. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
  7. King, Robert G.*Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  8. Ross Levine & Sara Zervos, "undated". "Stock markets, banks and economic growth ," CERF Discussion Paper Series 95-11, Economics and Finance Section, School of Social Sciences, Brunel University.
  9. Hasan, Iftekhar & Wachtel, Paul & Zhou, Mingming, 2009. "Institutional development, financial deepening and economic growth: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 157-170, January.
  10. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1203-1250.
  11. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
  12. Felix Rioja & Neven Valev, 2004. "Finance and the Sources of Growth at Various Stages of Economic Development," Economic Inquiry, Western Economic Association International, vol. 42(1), pages 127-140, January.
  13. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
  14. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
  15. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Does Financial Liberalization Spur Growth?," Working Paper Research 53, National Bank of Belgium.
  16. Falvey, Rod & Foster, Neil & Greenaway, David, 2007. "Relative backwardness, absorptive capacity and knowledge spillovers," Economics Letters, Elsevier, vol. 97(3), pages 230-234, December.
  17. César Calderón & Lin Liu, 2002. "The Direction of Causality Between Financial Development and Economic Growth," Working Papers Central Bank of Chile 184, Central Bank of Chile.
  18. Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000. "Financial intermediation and growth: Causality and causes," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 31-77, August.
  19. McCaig, Brian & Stengos, Thanasis, 2005. "Financial intermediation and growth: Some robustness results," Economics Letters, Elsevier, vol. 88(3), pages 306-312, September.
  20. Rioja, Felix & Valev, Neven, 2004. "Does one size fit all?: a reexamination of the finance and growth relationship," Journal of Development Economics, Elsevier, vol. 74(2), pages 429-447, August.
  21. Panicos Demetriades & Svetlana Andrianova, "undated". "Finance and Growth: What We Know and What We Need To Know," Discussion Papers in Economics 03/15, Department of Economics, University of Leicester.
  22. Khalifa Al-Yousif, Yousif, 2002. "Financial development and economic growth: Another look at the evidence from developing countries," Review of Financial Economics, Elsevier, vol. 11(2), pages 131-150.
  23. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law and finance: why does legal origin matter?," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 653-675, December.
  24. Stephen Cecchetti & Enisse Kharroubi, 2012. "Reassessing the impact of finance on growth," BIS Working Papers 381, Bank for International Settlements.
  25. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  26. 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.
  27. Mishkin, Frederic S., 2009. "Globalization and financial development," Journal of Development Economics, Elsevier, vol. 89(2), pages 164-169, July.
  28. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  29. Bertocco, Giancarlo, 2008. "Finance and development: Is Schumpeter's analysis still relevant?," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 1161-1175, June.
  30. Philip Arestis & Panicos Demetriades, "undated". "Finance and growth: Institutional Considerations and Causality," Working Papers 9605, University of East London, Department of Economics.
  31. El Khoury, Antoine C. & Savvides, Andreas, 2006. "Openness in services trade and economic growth," Economics Letters, Elsevier, vol. 92(2), pages 277-283, August.
  32. Benhabib, Jess & Spiegel, Mark M, 2000. "The Role of Financial Development in Growth and Investment," Journal of Economic Growth, Springer, vol. 5(4), pages 341-360, December.
  33. LG Deidda & B. Fattouh, 2001. "Non linearity between finance and growth," Working Paper CRENoS 200104, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  34. Chrysost BANGAKE & Comlanvi Jude EGGOH, 2010. "Further Evidence on Finance-Growth Causality: A Panel Data Analysis," LEO Working Papers / DR LEO 671, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
  35. Jalil, Abdul & Feridun, Mete & Ma, Ying, 2010. "Finance-growth nexus in China revisited: New evidence from principal components and ARDL bounds tests," International Review of Economics & Finance, Elsevier, vol. 19(2), pages 189-195, April.
  36. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
  37. Ergungor, O. Emre, 2008. "Financial system structure and economic growth: Structure matters," International Review of Economics & Finance, Elsevier, vol. 17(2), pages 292-305.
  38. Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
  39. 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, 07.
  40. Jalil, Abdul & Feridun, Mete & Ma, Ying, 2010. "Finance-growth nexus in China revisited: New evidence from principal components and ARDL bounds tests," Greenwich Papers in Political Economy 7918, University of Greenwich, Greenwich Political Economy Research Centre.
  41. Koetter, Michael & Wedow, Michael, 2006. "Finance and growth in a bank-based economy: is it quantity or quality that matters?," Discussion Paper Series 2: Banking and Financial Studies 2006,02, Deutsche Bundesbank, Research Centre.
  42. Clarke, George, 2001. "How the quality of institutions affects technological deepening in developing countries," Policy Research Working Paper Series 2603, The World Bank.
  43. William R. Hauk & Romain Wacziarg, 2004. "A Monte Carlo Study of Growth Regressions," NBER Technical Working Papers 0296, National Bureau of Economic Research, Inc.
  44. James B. Ang, 2007. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Monash Economics Working Papers 03-07, Monash University, Department of Economics.
  45. repec:hrv:faseco:30728041 is not listed on IDEAS
  46. Kendall, Jake, 2009. "Local financial development and growth," Policy Research Working Paper Series 4838, The World Bank.
  47. Chong, Alberto & Calderon, Cesar, 2000. "Institutional Quality and Income Distribution," Economic Development and Cultural Change, University of Chicago Press, vol. 48(4), pages 761-786, July.
  48. Panicos Demetriades & Siong Hook Law, 2006. "Finance, institutions and economic development," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(3), pages 245-260.
  49. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
  50. Ross Levine, 2003. "More on finance and growth: more finance, more growth?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 31-46.
  51. Shen, Chung-Hua & Lee, Chien-Chiang, 2006. "Same Financial Development Yet Different Economic Growth: Why?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1907-1944, October.
  52. Fu-Sheng Hung, 2009. "Explaining the nonlinear effects of financial development on economic growth," Journal of Economics, Springer, vol. 97(1), pages 41-65, May.
  53. Laura Langbein & Stephen Knack, 2010. "The Worldwide Governance Indicators: Six, One, or None?," Journal of Development Studies, Taylor & Francis Journals, vol. 46(2), pages 350-370.
  54. Siong Law & W. Azman-Saini, 2012. "Institutional quality, governance, and financial development," Economics of Governance, Springer, vol. 13(3), pages 217-236, September.
  55. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
  56. Rahaman, Mohammad M., 2011. "Access to financing and firm growth," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 709-723, March.
  57. Wu, Jyun-Yi & Hsu, Chih-Chiang, 2012. "Foreign direct investment and income inequality: Does the relationship vary with absorptive capacity?," Economic Modelling, Elsevier, vol. 29(6), pages 2183-2189.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:5373-5381. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.