The Non-Linear Relationship between Financial Development and Economic Growth: New Evidence by IMF Financial Development Index

Abstract

After the 2008 global financial crisis, criticism of the standard linear views explaining the finance-growth relationship has increased. While finance-growth literature had focused on the functions offered by financial development and the instability it creates, studies suggesting an inverted U relationship between financial development and economic growth have emerged. In this context, various studies have estimated threshold regressions and found conflicting results to show that the finance-growth relationship may have a different nature at different stages of financial development. Unlike the literature, this study measures threshold analysis of the finance-growth relationship through means of IMF financial development index, as it reflects the multiple nature of financial development. Accordingly, by using fixed-effect panel threshold regression, this work estimates the nature of this relationship for 100 countries between 1995 and 2018. According to the results, there is a positive relationship between finance and growth at the stage of low financial development. However, this relationship becomes insignificant at the stage of high financial development. At the end of the study, macro prudential policies are suggested that can keep financial development at stages where it positively effects economic growth.

Keywords

• Financial Development
• Economic Growth
• Threshold
• IMF

Finansal Gelişme ve Ekonomik Büyüme Arasındaki Doğrusal Olmayan İlişki: IMF Finansal Gelişmişlik Endeksi İle Yeni Bulgular

Abstract

2008 küresel finans krizinin ardından finans-büyüme ilişkisini açıklayan standart doğrusal görüşlere yönelik eleştiriler artmıştır. Buraya kadar finans-büyüme yazını finansal gelişimin sunduğu işlevler ve yarattığı istikrarsızlıklara odaklanmaktayken, buradan sonra finansal gelişim ve ekonomik büyüme arasında ters U ilişkisinin olduğunu öne süren çalışmalar da ortaya çıkmıştır. Bu bağlamda birbirinden farklı çalışmalar, finans-büyüme ilişkisinin finansal gelişmenin farklı aşamalarında farklı bir doğaya sahip olabileceğini göstermek adına eşik regresyonları tahmin etmişler ve birbiriyle çelişen sonuçlar öne sürmüşlerdir. Yazından farklı olarak, bu çalışma finans-büyüme ilişkisinin eşik analizini, finansal gelişmenin çoklu doğasını yansıtabilmesi nedeniyle IMF finansal gelişmişlik endeksini kullanarak ölçmektedir. Bu doğrultuda sabit etkili panel eşik regresyonu kullanılarak, 100 ülke için 1995-2018 yılları arasında bu ilişkinin doğası ölçülmüştür. Sonuçlara göre finansal gelişmenin düşük olduğu aşamada finans-büyüme arasında doğru orantılı bir ilişki bulunmaktayken bu ilişki finansal gelişmenin yüksek olduğu aşamada anlamsızlaşmaktadır. Çalışmanın sonunda, makro ihtiyati politikalar aracılığıyla finansal gelişmenin ekonomik büyümeyi olumlu etkilediği aşamalarda tutulması gerektiği tavsiye edilmiştir.

Keywords

• Finansal Gelişme
• Ekonomik Büyüme
• Eşik Analizi
• IMF

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