A Semi-Parametric Panel Data Analysis on Financial Development-Economic Volatility Nexus in Developing Countries

The aim of this paper is to examine the effect of financial development on economic growth volatility in a sample of 50 developing countries from 1960 to 2016. Since previous studies on such association provide mixed and inconclusive results, we employ a semi-parametric panel fixed-effects regression model as introduced by Baltagi and Li (2002). The semi-parametric models do not impose any functional restriction on the relationship between financial development and economic volatility and it helps to capture the existence of non-linearities in the data. We find that the financial development-volatility relation is non linear with multiple turning points. Our findings make new evidences on the financial development-economic volatility nexus