Interaction Effects in the Relationship between Growth and Finance
Capitalism and Society, Volume 1, Issue 1, Article 2, 2006
29 Pages Posted: 27 Aug 2012
Date Written: August 27, 2012
This paper analyzes how interacting financial development with initial income, macroeconomic volatility and policy variables, can improve our understanding of convergence and divergence across countries, and also restore the significance of correlations between growth and volatility and therefore between growth and macropolicy, even when controlling for country fixed effects or when eliminating countries with extreme policies or bad institutions.
Keywords: Financial development, convergence, volatility, interaction effects, countercyclical policy
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