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Testing the finance-growth link: is there a difference between developed and developing countries?

Author

Listed:
  • Gilles Dufrenot

    (University of Aix-Marseille, DEFI, and CEPII)

  • Valerie Mignon

    (University of Paris Ouest, EconomiX-CNRS and CEPII)

  • Anne Peguin-Feissolle

    (GREQAM-CNRS)

Abstract
We revisit the evidence of the existence of a long-run link between financial intermediation and economic growth, by testing of cointegration between the growth rate of real GDP, control variables and three series reflecting financial intermediation. We consider a model with a factor structure that allows us to determine whether the finance-growth link is due to cross countries dependence and/or whether it characterises countries with strong heterogeneities. We employ techniques recently proposed in the panel data literature, such as PANIC analysis and cointegration in common factor models. Our results show differences between the developed and developing countries. We run a comparative regression analysis on the 1980-2006 period and find that financial intermediation is a positive determinant of growth in developed countries, while it acts negatively on the economic growth of developing countries.

Suggested Citation

  • Gilles Dufrenot & Valerie Mignon & Anne Peguin-Feissolle, 2010. "Testing the finance-growth link: is there a difference between developed and developing countries?," Economics Bulletin, AccessEcon, vol. 30(3), pages 1794-1807.
    • Handle: RePEc:ebl:ecbull:eb-10-00212
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    References listed on IDEAS

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    Cited by:

    1. Iwasaki, Ichiro, 2022. "The finance-growth nexus in Latin America and the Caribbean: A meta-analytic perspective," World Development, Elsevier, vol. 149(C).
    2. Edoardo Gaffeo & Petya Garalova, 2014. "On the finance-growth nexus: additional evidence from Central and Eastern Europe countries," Economic Change and Restructuring, Springer, vol. 47(2), pages 89-115, May.
    3. Bangake, Chrysost & Eggoh, Jude C., 2011. "Further evidence on finance-growth causality: A panel data analysis," Economic Systems, Elsevier, vol. 35(2), pages 176-188, June.
    4. Anwar, Amar & Iwasaki, Ichiro, 2022. "The Finance–Growth Nexus inAsia : A Meta-Analytic Approach," CEI Working Paper Series 2022-03, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    5. Abdou-Aziz Niang & Abdoulaye Diagne & Marie-Claude Pichery, 2011. "Exploring the finance-real economy link in U.S.: empirical evidence from panel unit root and cointegration analysis," Empirical Economics, Springer, vol. 40(1), pages 253-268, February.
    6. IWASAKI, Ichiro & ONO, Shigeki, 2023. "Economic Development and the Finance-Growth Nexus : A Meta-Analytic Approach," CEI Working Paper Series 2023-06, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    7. Omidi , Nasrin & Fahimifard , Seyed Mohammad, 2013. "Financial Development and Economic Growth: Panel Data and Trilateral Analysis," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 8(3), pages 151-166, July.
    8. Amar Anwar & Ichiro Iwasaki, 2023. "The Finance–Growth Nexus in Asia: A Meta-Analytic Approach," Asian Development Review (ADR), World Scientific Publishing Co. Pte. Ltd., vol. 40(01), pages 13-48, March.

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    More about this item

    Keywords

    financial intermediation; growth; common factor; panel data; PANIC analysis;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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