FINANCIAL DEVELOPMENT AND GROWTH: A PANEL SMOOTH REGRESSION APPROACH

In this paper, we propose an original framework to determine the relative influence of series of variables on the linkage between financial development and economic growth. Based on panel threshold regression models, we establish country-specific and time-specific finance-growth coefficients for 71 countries, both developed and developing, from 1960 to 2004. The results show that inflation rate, ratio of government consumption, degree of openness to trade and financial development affect the non-linearity between financial development and growth, and have the greatest influence on the relationship of two variables.