Financialization, governance, and economic growth

Date

2026-01-01

Author

Özmen, Erdal
Taşdemir, Fatma

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This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

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We investigate the relationship between financialization and growth in advanced economies (AE) and emerging market and developing economies (EMDE). Our dynamic panel threshold estimation results suggest that the growth-enhancing effect of domestic financialization, proxied by financial development (FD), is much higher in EMDE with lower levels of FD, but FD impedes growth in AE, where FD is already high. International financialization, measured by international financial integration (IFI), can be used as an endogenously estimated threshold, which suggests that FD enhances growth in less financially integrated EMDE but hinders it in more financially integrated AE. Governance is also a threshold in EMDE, where the growth-enhancing effect of FD is significantly stronger when institutional quality is better. Our results imply that, to fully realize the growth benefits of financialization, policy makers should focus on strengthening institutions and implementing policies that attract more stable financial flows.

Subject Keywords

dynamic panel threshold model, Financial development, Governance, Growth, International financial integration

URI

https://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=105032237345&origin=inward
https://hdl.handle.net/11511/118969

Collections

Department of Economics, Article