Inflation and the finance-growth nexus

Ho Chuan Huang, Shu Chin Lin, Dong Hyeon Kim, Chih Chuan Yeh

Research output: Contribution to journalArticle

34 Citations (Scopus)

Abstract

This paper re-investigates whether there exist inflation thresholds in the finance-growth linkage. By applying the Caner and Hansen's (2004) instrumental-variable threshold regression approach to the dataset of Levine et al. (2000), we find strong evidence of a nonlinear inflation threshold in the relationship, below which financial development exerts a significantly positive effect on economic growth, while, above which, the growth effect of finance appears to be insignificant. Furthermore, we also find a positive and significant relationship between finance and productivity for inflation rates below the threshold level, but no such relationship is detected for inflation rates above the critical level. This result suggests that finance influences growth mainly through the productivity channel.

Original languageEnglish
Pages (from-to)229-236
Number of pages8
JournalEconomic Modelling
Volume27
Issue number1
DOIs
Publication statusPublished - 2010 Jan

Keywords

  • Economic growth
  • Financial development
  • Inflation
  • Instrumental variable
  • Threshold regression

ASJC Scopus subject areas

  • Economics and Econometrics

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