FINANCE-GROWTH NEXUS: A THRESHOLD EFFECT
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Existing empirical research fails to provide robust support concerning the impact of the financial development on the economic growth, in the presence of the substantial variations across different time periods and the 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 the 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 the positive effects fail to materialize at the 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.
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