The Non-Linear Link between Finance and Growth: A Threshold Panel Approach

Abstract

Using a Panel Smooth Threshold Regression, for 71 countries both developed and developing, over the period of 1960-2004, we find that finance-growth relationship is nonlinear. More precisely, this relationship is characterized by a “continuum” of regimes according to financial development threshold variables, and the sensibility of growth related to finance is stronger in countries with a low level of financial development than in financially developed countries.