Inflation Effects on Finance-Growth Link: A Panel Smooth Transition Approach
- 1 Department of Finance and Banking, School of Management and Accounting, Allameh Tabataba’i University, Tehran, Iran
- 2 Department of Finance and Banking, School of Management and Accounting, Allameh Tabataba’i University, Tehran, Iran
Abstract
Considering the effect of inflation on financial development and economic growth, in this paper we investigate the role of inflation in the effect of financial development on the economic growth in OPEC economies for the period of 1970 to 2015. For this purpose, we used Panel Smooth Threshold Regression (PSTR) to estimate nonlinear effects of inflation in the relation between economic growth and financial development. The results of estimation show that the thresholds of inflation rate were 20.33 and 20.36 considering the two different proxies of financial development (domestic credit provided by banking and domestic credit to private sector). The results of nonlinear estimation showed that in over-threshold inflations, the effect of financial development on the economic growth in the OPEC economies would decrease and would even become negative.
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