Non-linear finance-growth nexus for African countries: A panel smooth transition regression approach

The economic growth effects of financial development have been the focus of much research in empirical growth literature. Recent literature has focus on the nonlinear effects of financial development on economic growth using advances in econometric techniques. Using a novel data set, we examine the conditioning role of the overall level of financial development, financial institutions development and financial markets development in finance-growth nexus for African countries using panel smooth transition regression approach (PSTR). Our results show that a sufficient level of the overall financial development is needed for finance to be growth enhancing in African countries, while a robust non-linear finance-growth nexus cannot be established when we conditioned finance-growth nexus on financial institutions development or financial markets development.