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Financial development, threshold effects and convergence in developing and emerging countries

Author

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  • Jean-pierre Allegret

    (EconomiX, UMR 7235 CNRS and University of Paris Ouest Nanterre La Défense)

  • Sana Azzabi

    (PS2D, University of Tunisia)

Abstract

In this paper, we perform GMM dynamic panel data estimations to test the relationship between financial development and growth. Our dataset is composed of 112 emerging and developing countries over the period 1975-2007. More specifically, we test the presence of financial development threshold effects, on the one hand, between financial development and long-term growth, and, on the other hand, between financial development and long-term GDP. We also ask whether such effects may explain the link financial development - convergence/divergence to the advanced countries' growth. As predicted by literature, the very low level of financial development seems to explain the inability of countries to converge to frontier growth rate. But the higher the level of financial development, the lower its positive effect on steady-state per-capita GDP. Finally, the presence of financial development threshold effect between financial development and steady-state growth rate is not confirmed. We support only partially the role that the financial development could play in the acceleration of the convergence of emerging and developing economies towards the world frontier growth.

Suggested Citation

  • Jean-pierre Allegret & Sana Azzabi, 2013. "Financial development, threshold effects and convergence in developing and emerging countries," Economics Bulletin, AccessEcon, vol. 33(3), pages 1899-1921.
    • Handle: RePEc:ebl:ecbull:eb-13-00165
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    1. Souhir Elhmedi & Niazi Kammoun, 2024. "Capital account liberalization and economic growth in Tunisia," SN Business & Economics, Springer, vol. 4(6), pages 1-21, June.

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    More about this item

    Keywords

    Financial development; Economic growth; Convergence; Threshold effects; Generalized Method of Moments; Dynamic panel;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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