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Who Benefits from Financial Development? New Methods, New Evidence

Author

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  • : Daniel J. Henderson

    (Department of Economics, Finance and Legal Studies, University of Alabama)

  • Chris Papageorgiou

    (Strategy, Policy and Review Department, International Monetary Fund, Washington, DC)

  • Christopher F. Parmeter

    (Department of Economics, University of Miami)

Abstract

This paper takes a fresh look at the impact of financial development on economic growth by using recently developed kernel methods that allow for heterogeneity in partial effects, nonlinearities, and endogenous regressors. Our results suggest that while the positive impact of financial development on growth has increased over time, it is also highly nonlinear with more developed nations benefiting while low-income countries do not benefit at all. We also conduct a novel policy analysis that confirms these statistical findings. In sum, this set of results contributes to the ongoing policy debate as to whether low-income nations should scale up financial reforms.

Suggested Citation

  • : Daniel J. Henderson & Chris Papageorgiou & Christopher F. Parmeter, 2012. "Who Benefits from Financial Development? New Methods, New Evidence," Working Papers 2013-07, University of Miami, Department of Economics.
  • Handle: RePEc:mia:wpaper:2013-07
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    Cited by:

    1. Baglan, Deniz & Yoldas, Emre, 2014. "Non-linearity in the inflation–growth relationship in developing economies: Evidence from a semiparametric panel model," Economics Letters, Elsevier, vol. 125(1), pages 93-96.
    2. Forte, Anabel & Peiró-Palomino, Jesús & Tortosa-Ausina, Emili, 2015. "Does social capital matter for European regional growth?," European Economic Review, Elsevier, vol. 77(C), pages 47-64.
    3. Jetter, Michael & Nikolsko-Rzhevskyy, Alex & Smith, William T., 2013. "The effects of wage volatility on growth," Journal of Macroeconomics, Elsevier, pages 93-109.
    4. Iván Arribas & Jesús Peiró-Palomino & Emili Tortosa-Ausina, 2015. "Is full banking integration desirable?," Working Papers 2015/05, Economics Department, Universitat Jaume I, Castellón (Spain).
    5. Isoré, Marlène & Szczerbowicz, Urszula, 2017. "Disaster risk and preference shifts in a New Keynesian model," Journal of Economic Dynamics and Control, Elsevier, pages 97-125.
    6. Jesús Peiró-Palomino, 2016. "Social Capital and Economic Growth in Europe: Nonlinear Trends and Heterogeneous Regional Effects," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(5), pages 717-751, October.
    7. Ekpeno L. Effiong & Emmanuel E. Asuquo, 2017. "Migrants' Remittances, Governance and Heterogeneity," International Economic Journal, Taylor & Francis Journals, pages 535-554.
    8. Daniel J. Henderson & Christopher F. Parmeter & Liangjun Su, 2017. "M-Estimation of a Nonparametric Threshold Regression Model," Working Papers 2017-15, University of Miami, Department of Economics.
    9. Michele Battisti & Massimo Del Gatto & Christopher F. Parmeter, 2014. "Labor Productivity Growth: Disentangling Technology and Capital Accumulation," Working Papers 2014-02, University of Miami, Department of Economics.
    10. Andini, Monica & Andini, Corrado, 2014. "Finance, growth and quantile parameter heterogeneity," Journal of Macroeconomics, Elsevier, pages 308-322.
    11. Simplice A. Asongu & Jacinta C. Nwachukwu, 2017. "At what levels of financial development does information sharing matter?," Financial Innovation, Springer;Southwestern University of Finance and Economics, pages 1-30.
    12. Liu, Guan-Chun & Lee, Chien-Chiang & Lee, Chi-Chuan, 2016. "The nexus between insurance activity and economic growth: A bootstrap rolling window approach," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 299-319.
    13. Lisa Chauvet & Luc Jacolin, 2015. "Financial Inclusion and Firms performance," Post-Print hal-01516871, HAL.
    14. Joshua C. Hall & Russell S. Sobel & George R. Crowley, 2010. "Institutions, Capital, and Growth," Southern Economic Journal, Southern Economic Association, vol. 77(2), pages 385-405, October.
    15. Gavoille, Nicolas & Verschelde, Marijn, 2017. "Electoral competition and political selection: An analysis of the activity of French deputies, 1958–2012," European Economic Review, Elsevier, vol. 92(C), pages 180-195.
    16. Kyriakos C. Neanidis, 2015. "Volatile Capital Flows and Economic Growth: The Role of Macro-prudential Regulation," Centre for Growth and Business Cycle Research Discussion Paper Series 215, Economics, The Univeristy of Manchester.
    17. Mariam Camarero & Jesús Peiró-Palomino & Cecilio Tamarit, 2017. "External imbalances and growth," Working Papers 2017/02, Economics Department, Universitat Jaume I, Castellón (Spain).
    18. Prettner, Catherine, 2016. "Nonlinearities and Parameter Instability in the Finance-Growth Nexus," Department of Economics Working Paper Series 5037, WU Vienna University of Economics and Business.
    19. repec:eee:jpolmo:v:39:y:2017:i:2:p:290-306 is not listed on IDEAS
    20. repec:eee:intfin:v:51:y:2017:i:c:p:155-170 is not listed on IDEAS
    21. Michael Jetter, 2013. "Volatility and Growth: An Explanation for the Disagreement," DOCUMENTOS DE TRABAJO CIEF 010944, UNIVERSIDAD EAFIT.
    22. repec:eee:wdevel:v:97:y:2017:i:c:p:1-13 is not listed on IDEAS
    23. Jetter, Michael, 2014. "Volatility and growth: Governments are key," European Journal of Political Economy, Elsevier, pages 71-88.
    24. repec:spr:empeco:v:53:y:2017:i:4:d:10.1007_s00181-016-1173-6 is not listed on IDEAS
    25. Catherine Prettner, 2016. "Nonlinearities and Parameter Instability in the Finance-Growth Nexus," Department of Economics Working Papers wuwp224, Vienna University of Economics and Business, Department of Economics.

    More about this item

    Keywords

    Country heterogeneity; financial development; growth; nonlinearities; nonparametric regression; irrelevant variables;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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