Uncovering the (ir)relevance of finance on economic growth

This paper takes a fresh look at the impact of financial development on economic growth. We allow for parameter heterogeneity and nonlinearities in a completely nonparametric fashion using recently developed generalized kernel methods. Our findings suggest that financial development (an appropriate index of it) impacts growth in a nonlinear fashion. We find that financial development has a larger and significant impact for countries with higher initial incomes, lower population growth rates and higher levels of investment. Further, this impact of financial development has grown over time.