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Who Benefits from Financial Development? New Methods, New Evidence

  • : 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)

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.

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Paper provided by University of Miami, Department of Economics in its series Working Papers with number 2013-07.

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Length: 58 pages
Date of creation: 15 Oct 2012
Date of revision:
Handle: RePEc:mia:wpaper:2013-07
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