Finance-growth nexus: A threshold effect

Mihci S.

EKONOMICKY CASOPIS, vol.54, no.8, pp.830-844, 2006 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 54 Issue: 8
  • Publication Date: 2006
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.830-844
  • Hacettepe University Affiliated: Yes


Existing empirical research fails to provide robust support concerning the impact of financial development on economic growth, in the presence of substantial variations across different time periods and country groups. It is suggested that the variations in question are to be accounted for by a threshold effect, in support of which, it seems to have been found modest empirical evidence. Panel-data analysis for a set of 32 developing and developed countries for the period of 1990-2001 indicates a threshold level of financial development, with the implication that positive effects fail to materialize at relatively lower stages of financial development. Moreover, financial development has actually got a negative impact on GDP per capita, unless it exceeds the threshold level.