Template-Type: ReDIF-Paper 1.0
Author-Name: Basturk, N.
Author-Name-Last: Basturk
Author-Name-First: Nalan
Author-Name: Paap, R.
Author-Name-Last: Paap
Author-Name-First: Richard
Author-Person: ppa494
Author-Name: van Dijk, D.J.C.
Author-Name-Last: van Dijk
Author-Name-First: Dick
Author-Person: pva27
Title: Financial Development and Convergence Clubs
Abstract: This paper studies the economic development process, measured by Gross  Domestic Product (GDP), for a large panel of countries. We propose a  methodology that identifies groups of countries (convergence clubs) that show  similar GDP structures, while allowing for changes in club memberships over  time. As a second step we analyze the short-run and long-run effects of financial development (measured by financial intermediary development and stock  market development) on the GDP process, and the composition of the convergence clubs. We find that the club memberships are quite persistent, but still  their compositions change substantially over time. In particular, several EU  member countries and East Asian countries are found to belong to a higher  GDP club in recent times compared to the beginning of the 1970s. In terms  of the effects of financial development indicators on the GDP process, our  results partially confirm the theoretical basis for different effects of financial  development indicators in the short-run and the long-run. In the long-run,   financial development is found to affect the countries’ GDP level positively.  The short-run effects of financial development indicators however are found  to be less clear, in the sense that we do not find a negative short-run effect of  financial intermediary development on GDP levels, while the short-run effect  of stock market development is found to be negative.
Creation-Date: 2010-09-22
File-URL: https://repub.eur.nl/pub/20741/EI2010-52.pdf
File-Format: application/pdf
Series: RePEc:ems:eureir
Number: EI 2010-52
Keywords: Markov chain models, convergence clubs, economic growth, financial developments
Handle: RePEc:ems:eureir:20741