Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Nonlinearities and Parameter Instability in the Finance-Growth Nexus
Abstract: This paper offers a re-assessment of the finance-growth
nexus in a framework that allows to distinguish between short-run versus
long-run effects. Our dataset contains information on 45 developed and
developing countries over the period 1995-2011. We make use of the
integration and cointegration properties of the data, establish a
cointegrating relation and derive the long-run elasticities of per capita
GDP with respect to employment, the physical capital stock, and financial
development. We employ these results to specify an error correction model
and assess whether the years of crisis have changed the relationship
between finance and growth.
Keywords: Finance-Growth Nexus, Panel Cointegration, Error Correction Model, Threshold Model, End-of-sample instability; (follow links to similar papers)
JEL-Codes: E44,; F43,; F65; (follow links to similar papers)
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