Financial development and economic growth across the globe: Does institutional quality matter?

Our study focuses on the effect of financial development and institutional quality on economic growth across the globe. We employed the system General Methods of Moments and dynamic panel threshold regression on 182 countries from 2000 to 2021. We found that financial development and institutional quality stimulate economic growth in Africa and developing economies. We also find evidence that institutional quality moderates the relationship between financial development and economic growth in the full sample and developed economics. We also find evidence of institutional quality threshold effect on economic growth, with the impact of institutional quality on growth being positive above a certain threshold value. However, below the threshold, we found a negative effect of institutional quality on economic growth in Africa and developing economies. We also find evidence that at a higher level of institutional quality, financial development positively influences economic growth in Africa, developing and developed economies. Policymakers should focus on simultaneously enhancing financial development and institutional quality in Africa and developing economies.