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The dual-financial-threshold effect in the “club convergence” of economic growth: a dynamic panel threshold model

Author

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  • Yang Song

    (Southwestern University of Finance and Economics)

  • Dayu Liu

    (Jilin University)

  • Qiaoru Wang

    (Jilin University)

Abstract

This paper revisits the “club convergence” of economic growth by taking imperfect credit market into account in the Schumpeterian growth models with technology transfer. It derives nonlinear relationships between financial development and economic growth via the dynamic evolution of technology gap. Using a dynamic panel threshold model, we find a dual-financial-threshold effect in the “club convergence” of economic growth which is highly consistent with theoretical conclusions. When a nation’s level of financial development is below the lower threshold value, the nation will not converge to the frontier growth rate, while the steady-state economic growth rate will strictly increase with the increased level. The probability of the convergence will considerably increase when the level lies between the lower and higher threshold values. The positive impact of the level on the steady-state relative output will gradually diminish with an obvious diminishing marginal utility, when the level is above the higher threshold value.

Suggested Citation

  • Yang Song & Dayu Liu & Qiaoru Wang, 2021. "The dual-financial-threshold effect in the “club convergence” of economic growth: a dynamic panel threshold model," Empirical Economics, Springer, vol. 61(5), pages 2713-2737, November.
    • Handle: RePEc:spr:empeco:v:61:y:2021:i:5:d:10.1007_s00181-020-01975-4
    DOI: 10.1007/s00181-020-01975-4
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    More about this item

    Keywords

    Financial development; Threshold value; Club convergence; Technology gap;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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