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The dual-financial-threshold effect in the “club convergence” of economic growth: a dynamic panel threshold model

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Abstract

This paper revisits the “club convergence” of economic growth by taking imperfect credit market into account in the Schumpeterian growth models with technology transfer. It derives nonlinear relationships between financial development and economic growth via the dynamic evolution of technology gap. Using a dynamic panel threshold model, we find a dual-financial-threshold effect in the “club convergence” of economic growth which is highly consistent with theoretical conclusions. When a nation’s level of financial development is below the lower threshold value, the nation will not converge to the frontier growth rate, while the steady-state economic growth rate will strictly increase with the increased level. The probability of the convergence will considerably increase when the level lies between the lower and higher threshold values. The positive impact of the level on the steady-state relative output will gradually diminish with an obvious diminishing marginal utility, when the level is above the higher threshold value.

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Funding

This paper has been financially supported by the National Social Science Fund of China’s post-sponsored program entitled “Research on fundamental trend, convergence characteristic and economic policy regulation mechanism of China’s business cycle fluctuations” (20FJYB007). All authors are grateful to the editor and anonymous referees for their valuable advices and comments that have improved this paper significantly.

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Authors and Affiliations

  1. School of Public Finance and Taxation, Southwestern University of Finance and Economics, 725 Gezhi Building, 555 Liutai Avenue, Chengdu, 611130, Sichuan, China

    Yang Song

  2. Quantitative Economics Center, Jilin University, 2699 Qian** Street, Changchun, 130012, Jilin, China

    Dayu Liu & Qiaoru Wang

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  1. Yang Song
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  2. Dayu Liu
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  3. Qiaoru Wang
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Correspondence to Dayu Liu.

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Song, Y., Liu, D. & Wang, Q. The dual-financial-threshold effect in the “club convergence” of economic growth: a dynamic panel threshold model. Empir Econ 61, 2713–2737 (2021). https://doi.org/10.1007/s00181-020-01975-4

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  • DOI: https://doi.org/10.1007/s00181-020-01975-4

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