International Economics

<< N°160

Issue Q4 2019  
The nonlinear relationship between economic growth and financial development: Evidence from developing, emerging and advanced economies  
Jaroslava Botev
Balázs Égert
Fredj Jawadi

This paper studies the relationship between financial development and economic growth in a large sample of developing, emerging and advanced economies over the recent period. Estimation results based on various nonlinear threshold regression models do not confirm the too-much-finance-is-bad hypothesis. We cannot indeed identify a tipping point beyond which financial development has a clear negative relation to economic development. Our results also show that banking and market finance are complementary. The positive effect of bank credit on growth is larger in stock markets that are deeper. But the thresholds above which complementarity kicks in are rather low level. Finally, the effects of bank and market finance do not seem to depend on economic development and trade openness.


Financial development ; Economic growth ; Nonlinearity ; Threshold effects ; Keywords
C2 ; G15 ; JEL classification
Order form