Do political institutions improve the diminishing effect of financial deepening on growth? Evidence from developing countries

This paper studies the effect that credit market deepening has on economic growth in emerging and developing economies over the 1970-2014 period. The paper further examines whether political institutions intermediate the relationship between credit market deepening and economic growth. Two main findings have been uncovered in the empirical analysis. The first key finding suggests that credit market deepening reduces economic growth in the panel of emerging and developing economies. The second central finding indicates that democratic institutions reduce the diminishing effect of credit market deepening on economic growth. Overall, these findings advance economic and political debate in emerging and developing economies.