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<p>We explore the potential nonlinear impact of economic growth on financial depth, an important topic that is still largely absent from the existing literature. Using a panel dataset of 122 countries, we apply a dynamic panel threshold regression model with endogeneity to examine this nonlinearity. Our findings reveal evidence of nonlinearity driven by a threshold effect related to institutional quality. Specifically, we demonstrate that the impact of economic growth on financial depth becomes positive and significant once countries surpass a certain level of institutional quality. These results underscore the importance of enhancing institutional quality to effectively leverage economic growth as a catalyst for financial market development.</p>

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Economic growth and financial depth: the role of institutional quality

  • 期刊论文

  • 发表日期：

    2026年1月4日

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  • Chaoyi Chen,
  • Zoltán Pókász

摘要

We explore the potential nonlinear impact of economic growth on financial depth, an important topic that is still largely absent from the existing literature. Using a panel dataset of 122 countries, we apply a dynamic panel threshold regression model with endogeneity to examine this nonlinearity. Our findings reveal evidence of nonlinearity driven by a threshold effect related to institutional quality. Specifically, we demonstrate that the impact of economic growth on financial depth becomes positive and significant once countries surpass a certain level of institutional quality. These results underscore the importance of enhancing institutional quality to effectively leverage economic growth as a catalyst for financial market development.