The Threshold and Asymmetric Effects of Financial Development on Economic Growth in BRICS Countries: Evidence from Panel Threshold-ARDL

Abstract

In this paper we study the asymmetric effect and threshold of financial development on economic growth. We present a fresh evidence using the panel threshold-ARDL (Panel-TARDL) model for the 5 BRICS countries including Brazil, Russia, India, China and South Africa. We apply the Pool Mean Group (PMG) procedure for the estimation. The findings reveal that the long run threshold and asymmetric effects of finance taking place once the credit reached 38% of GDP. The financial development significantly improve the economic growth only below the threshold point thereafter the effect becomes negative. We find no significant threshold and asymmetry in the short run. Using a 58% as a threshold we find a negative effect of finance for both the segments of the threshold and no asymmetry is detected. These suggest that any level of credit above 38% of GDP will produce an adverse effect of finance on growth. The Policy implications of these results are also discussed.