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  N°150  
Issue Q2 2017  
Non-linearity in the finance-growth nexus: Evidence from Indonesia  
Wahyoe Soedarmono
Iftekhar Hasan
Nuruzzaman Arsyad
 
This paper investigates the finance-growth nexus where bank credit is decomposed into investment, consumption, and working capital credit. From a panel dataset of provinces in Indonesia, it documents that higher financial development measured by financial deepening and financial intermediation exhibits an inverted U-shaped relationship with economic growth. This non-linear effect of financial deepening is driven by both investment credit and consumption credit. These results suggest that too much investment credit and, to a lesser extent, consumption credit are detrimental to economic growth. Ultimately, only financial intermediation associated with working capital credit has a positive and monotonic impact on economic growth. Abstract

   
Financial deepening ; Financial intermediation ; Bank credit decomposition ; Regional economic growth ; Keywords
G20 ; O16 ; O40 ; JEL classification
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