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Is the Growth Effect of Financial Development Conditional on Technological Innovation?

  • Arshad Ali Bhatti
  • M. Emranul Haque
  • Denise R. Osborn

This paper argues that excessive financial development in combination with high levels of technological innovation or R&D activities may lead to the former being ineffective in generating economic growth. This hypothesis is examined through a dynamic panel analysis using two measures of financial development, in conjunction with R&D expenditure, for 36 OECD and non-OECD countries. Using a range of panel data estimators, our results show that the relationship between financial development and economic growth is not straightforward; rather, it is conditional upon the level of R&D. Further, we find that a high level of R&D is associated with a weak or negative effect of financial development on economic growth.

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File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr188.pdf
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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 188.

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Length: 33 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:man:cgbcrp:188
Contact details of provider: Postal: Manchester M13 9PL
Phone: (0)161 275 4868
Fax: (0)161 275 4812
Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/our-research/centre-for-growth-and-business-cycle-research/
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  1. Maria Fuensanta Morales, 2001. "Financial Intermediation in a Model of Growth through Creative Destruction," UFAE and IAE Working Papers 487.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Deidda, Luca & Fattouh, Bassam, 2002. "Non-linearity between finance and growth," Economics Letters, Elsevier, vol. 74(3), pages 339-345, February.
  3. Roland Beck & Annette Kamps & Elitza Mileva, 2007. "Long-term growth prospects for the Russian economy," Occasional Paper Series 58, European Central Bank.
  4. Enrico Berkes & Ugo Panizza & Jean-Louis Arcand, 2012. "Too Much Finance?," IMF Working Papers 12/161, International Monetary Fund.
  5. Hakan Yilmazkuday, 2011. "Thresholds in the Finance-Growth Nexus: A Cross-Country Analysis," World Bank Economic Review, World Bank Group, vol. 25(2), pages 278-295, May.
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