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Title:: Does the Development of Finance Really Lead to Economic Growth?: A Semiparamteric Analysis

Keywords:: semiparametric estimation; financial development; economic growth

Abstract:: Using the panel data of 66 countries worldwide, we re-examined the relationship between financial development and economic growth, and tested the results by putting those counties in different groups according to their income levels. In order to overcome the sensitivity of choosing financial development indicators, we selected the liquidity, the importance of commercial banks and personal debt as indicators to measure financial development. The empirical results show that: whether in the whole sample or in sample groups, a complex non-liner relationship exists between financial development and economic growth, which suggests that financial development does not always increase economic growth. On this basis, we offer the following three suggestions: to reform the structure of monetary stock; to enhance the supervision of companies’ morality; and to transform the function of government.