THRESHOLD EFFECTS OF BANKING DEVELOPMENT ON ECONOMIC VOLATILITY: A VIEW FROM DEVELOPING COUNTRIES

Abstract

This study investigates the link between banking development and economic growth volatility in developing countries over the period 2004-2019, employing a panel smooth transition regression approach. By examining various dimensions of banking development, our findings suggest a nonlinear relationship between banking development and economic volatility, characterized by abrupt shifts. Our research provides valuable insights to financial regulators, emphasizing that strengthening oversight of the banking sector and monitoring banking activities are crucial for ensuring adequate levels of financing to mitigate economic fluctuations.