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Access to Finance Thresholds and the Finance-Growth Nexus

Authors


  • The authors are indebted to Dr. Ali Arifa and anonymous referees for their extremely useful comments and suggestions, which improved significantly the clarity of the previous version of this paper.

Correspondence: Walid Abdmoulah, Arab Planning Institute, P.O. Box 5834, Safat 13059, Kuwait. Email: walid@api.org.kw

Abstract

Based on Aghion et al. (2005), this article provides new insights regarding whether financial development can affect economic growth non-linearly by adopting the concept of threshold effects. The empirical approach adopted in this article allows for the finance-growth relationship to be piecewise linear with a set of indicators including access to finance acting as a regime-switching trigger. Using cross-country observations from 144 countries stretching from 1985 to 2009, strong evidence of threshold effects in finance-growth link is found. It is suggested that financial development in general, and access to finance in particular, is among the important forces contributing to cross-country (non)-convergences in growth rates.

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