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Convergence in Financial Development and Growth

Author

Listed:
  • Zhiheng He

    (Tsinghua University)

  • Yang You

    (The University of Hong Kong)

Abstract

We evaluate the cross-country convergence of financial development and its relationship with GDP growth. Financial inclusion variables have been widely converged across countries, and the catch-up effect of countries with poor financial coverage mainly drives the convergence. In contrast, financial development measures — including domestic credit, liability, mutual fund size, and stock market capitalization — have diverged since 1985 despite the absolute convergence in GDP and financial inclusion. The GDP growth rates strongly correlate with the change in financial development but not the improvement in financial inclusion.

Suggested Citation

  • Zhiheng He & Yang You, 2024. "Convergence in Financial Development and Growth," Open Economies Review, Springer, vol. 35(4), pages 779-799, September.
    • Handle: RePEc:kap:openec:v:35:y:2024:i:4:d:10.1007_s11079-024-09767-4
    DOI: 10.1007/s11079-024-09767-4
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    More about this item

    Keywords

    Economic convergence; Financial inclusion; Divergence in finance;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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