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

Öz

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.

Anahtar Kelimeler

• Financial Development
• Economic Growth
• Threshold
• IMF

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

Öz

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.

Anahtar Kelimeler

• Finansal Gelişme
• Ekonomik Büyüme
• Eşik Analizi
• IMF

Kaynakça

1. Aghion, P., Howitt, P. and Mayer-Foulkes, D. (2005). The effect of financial development on convergence: Theory and evidence. The Quarterly Journal of Economics, 120(1), 173-222. doi:10.1162/0033553053327515
2. Alesina, A. and Wacziarg, R. (1998). Opennes, country size and government. Journal of Public Economics, 3(1), 305-321. doi:10.1016/S0047-2727(98)00010-3
3. Arcand, J.-L., Berkes, E. and Panizza, U. (2015). Too much finance. Journal of Economic Growth, 20, 105-148. doi:10.1007/s10887-015-9115-2
4. Barradas, R. (2017). Financialisation and real investment in the European Union: Beneficial or prejudical effects? Review of Political Economy, 29(3), 376-413. doi:10.1080/09538259.2017.1348574
5. Barro, R. J. (1991). Economic growth in a cross section of countries. The Quarterly Journal of Economics, 106(2), 407-443. doi:10.2307/2937943
6. Beck, T. and Levine, R. (2002). Industry growth and capital allocation: Does having a market- or bank-based system matter? Journal of Financial Economics, 64(2), 147-180. doi:10.1016/S0304-405X(02)00074-0
7. Beck, T. and Levine, R. (2004). Stock markets, banks, and growth: Panel evidence. Journal of Banking & Finance, 28(3), 423-442. doi:10.1016/S0378-4266(02)00408-9
8. Bertocco, G. (2008). Finance and development: Is Schumpeter’s analysis still relevant? Journal of Banking & Finance, 32(6), 1161-1175. doi:10.1016/j.jbankfin.2007.10.010

9. Botev, J., Egert, B. and Jawadi, F. (2019). The nonlinear relationship between economic growth and financial development: Evidence from developing, emerging and advanced economies. International Economics, 160, 3-13. doi:10.1016/j.inteco.2019.06.004
10. Capelle-Blancard, G. and Labonne, C. (2016). More bankers, more growth? Evidence from OECD countries. Economic Notes, 45(1), 37-51. doi:10.1111/ecno.12051
11. Cecchetti, S. G. and Kharroubi, E. (2012). Reassessing the impact of finance on growth (BIS Working Paper No. 381). Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2117753
12. Çoban, S. and Topcu, M. (2013). The nexus between financial development and energy consumption in the EU: A dynamic panel data analysis. Energy Economics, 39, 81-88. doi:0.1016/j.eneco.2013.04.001
13. Deidda, L. and Fattouh, B. (2002). Non-linearity between finance and growth. Economics Letters, 339-345. doi:10.1016/S0165-1765(01)00571-7
14. Demetriades, P. O. and Hussein, K. A. (1996). Does financial development cause economic growth? Time-series evidence from 16 countries. Journal of Development Economics, 51(2), 387-411. doi:10.1016/S0304-3878(96)00421-X
15. Demetriades, P. O. and Rousseau, P. L. (2016). The changing face of financial development. Economics Letters, 141, 87-90. doi:10.1016/j.econlet.2016.02.009
16. Fajeau, M. (2021). Too much finance or too many weak instruments? International Economics, 165, 14-36. doi:10.1016/j.inteco.2020.10.003
17. Frankel, J. A. and Romer, D. H. (1999). Does trade cause growth? American Economic Review, 89(3), 379-399. doi:10.1257/aer.89.3.379
18. Galindo, A., Schiantarelli, F. and Weiss, A. (2007). Does financial liberalization improve the allocation of investment?: Micro-evidence from developing countries. Journal of Development Economics, 83(2), 562-587. doi:10.1016/j.jdeveco.2005.09.008
19. Giuliano, P. and Ruiz-Arranz, M. (2009). Remittances, financial development, and growth. Journal of Development Economics, 90(1), 144-152. doi:10.1016/j.jdeveco.2008.10.005
20. Hansen, B. E. (1996). The grid bootstrap and the autoregressive model. The Review of Economics and Statistics, 81(4), 594-607. doi:10.1162/003465399558463
21. Hansen, B. E. (1999). Threshold effects in non-dynamic panels: Estimation, testing, and inference. Journal of Econometrics, 93(2), 345-368. doi:10.1016/S0304-4076(99)00025-1
22. Hodula, M. and Ngo, N. A. (2020). Finance, growth and (macro)prudential policy: European Evidence. Czech National Bank. Retrieved from https://www.cnbprovsechny.cnb.cz/export/sites/ cnb/en/economic-research/.galleries/research_publications/cnb_wp/cnbwp_2020_02.pdf
23. Huang, Y. (2010). Political institiutions and financial development: An empirical study. World Development, 38(12), 1667-1677. doi:10.1016/j.worlddev.2010.04.001
24. Kaminsky , G. L. and Reinhart, C. M. (1999). The twin crises: The causes of banking and balance-of-payments problems. American Economic Review, 89(3), 473-500. doi:10.1257/aer.89.3.473
25. Karagiannis, S. and Kvedaras, V. (2016). Financial development and economic growth: A European perspective. Luxembourg: Publications Office of the European Union.
26. Kendall, J. (2012). Local financial development and growth. Journal of Banking & Finance, 36(5), 1548-1562. doi:10.1016/j.jbankfin.2012.01.001
27. Keynes, J. M. (2018). The general theory of employment, interest and money. UK: Palgrave Macmillan.
28. Khan, M. A., Qayyum, A. and Sheikh, S. A. (2005). Financial development and economic growth: The case of Pakistan. Pakistan Development Review, 44(4), 819-837. Retrieved from https://www.jstor.org/
29. Kindleberger, C. P. (2008). Cinnet, panik ve çöküş: Mali krizler tarihi (H. Tunalı, Çev.). İstanbul: İstanbul Bilgi Üniversitesi Yayınları.
30. King, R. G. and Levine, R. (1993). Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics, 108(3), 717-737. doi:10.2307/2118406
31. Lavoie, M. (2014). Post-keynesian economics: New foundations. Northampton: Edward Elgar Publishing Inc.
32. Law, S. H. and Singh, N. (2014). Does too much finance harm economic growth? Journal of Banking & Finance, 41, 36-44. doi:10.1016/j.jbankfin.2013.12.020
33. Law, S. H., Azman-Saini, W. N. and Ibrahim , M. H. (2013). Institutional quality threshols and the finance-growth nexus. Journal of Banking & Finance, 37(12), 5373-5381. doi:10.1016/j.jbankfin.2013.03.011
34. Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature, 35(2), 688-726. Retrieved from https://www.jstor.org/
35. Levine, R. (2005). Finance and growth: Theory and evidence. In P. Aghion and S. N. Durlauf (Eds.), Handbook of economic growth (pp. 865-934). doi:10.1016/S1574-0684(05)01012-9
36. Levine, R., Loayza, N. and Beck, T. (2000). Financial intermediation and growth: Causality and causes. Journal of Monetary Economics, 46(1), 31-77. doi:10.1016/S0304-3932(00)00017-9
37. Lim, C. H., Costa, A., Columba, F., Kongsamut, P., Otani, A., Saiyid, M., ..., Wu, X. (2011). Macroprudential policy: What instruments and how to use them? Lessons from country experiences (IMF Working Paper Series No. 11/238). https://doi.org/10.5089/9781463922603.001
38. Loayza, N. V. and Ranciere, R. (2006). Financial development, financial fragility, and growth. Journal of Money, Credit and Banking, 38(4), 1051-1076. Retrieved from http://www.jstor.org/
39. Minsky, H. P. (1977). The financial instability hypothesis: An interpretation of Keynes and an alternative to "standard" theory. Nebraska Journal of Economics and Business, 5-16. Retrieved from https://www.jstor.org/
40. Rajab, R. G. and Zingales, L. (1998). Financial dependence and growth. The American Economic Review, 88(3), 559-586. Retrieved from www.jstor.org/
41. Rioja, F. and Valev, N. (2004). Finance and the sources of economic growth at various stages of economic development. Economic Inquiry, 42(1), 127-140. doi:10.1093/ei/cbh049
42. Rousseau, P. L. and Wachtel, P. (2011). What is happening to the impact of financial deepening on economic growth? Economic Inquiry, 49(1), 276-288. doi:10.1111/j.1465-7295.2009.00197.x
43. Saci, K. and Holden, K. (2008). Evidence on growth and financial development using principal components. Applied Financial Economics, 18(19), 1549-1560. doi:10.1080/09603100701720286
44. Sala-i-Martin, X., Doppelhofer, G. and Miller, R. I. (2004). Determinants of long-term growth: A bayesian averaging of classical estimates (BACE) approach. The American Economic Review, 94(4), 813-835. Retrieved from https://www.jstor.org/
45. Schularick, M. and Taylor, A. M. (2012). Credit booms gone bust: Monetary policy, leverage cycles, and financial crises, 1870-2008. American Economic Review, 102(2), 1029-1061. doi:10.1257/aer.102.2.1029
46. Stockhammer, E. (2004). Financialisation and the slowdown of accumulation. Cambridge Journal of Economics, 28, 719-741. doi:10.1093/cje/beh032
47. Svirydzenka, K. (2016). Introducing a new broad-based index of financial development (IMF Working Paper No. 16/5). Retrieved from https://www.elibrary.imf.org/view/journals/001/2016/005/article-A999-en.xml
48. Tobin, J. (1984). On the efficiency of the financial-system. Lloyds Bank Annual Review, 153, 1-15. Retrieved from https://economicsociologydotorg.files.wordpress.com/
49. Van Treeck, T. (2008). Reconsidering the investment-profit nexus in finance led economies: An ARDL-based Approach. Metroeconomica, 59(3), 371-404. doi:10.1111/j.1467-999X.2008.00312.x
50. Wang, Q. (2015). Fixed-effect panel threshold model using Stata. The Stata Journal, 15(1), 121-134. doi:10.1177/1536867X1501500108