Title: Threshold effects of inflation on the financial development-economic growth nexus in Tunisia

Authors: Kamel Helali; Khoutem Ben Jedidia; Thouraya Boujelbène

Addresses: Faculty of Economics and Management of Sfax, University of Sfax, Aerodrome Road km 4.5, B.P. 1088-3018, Sfax, Tunisia ' Higher Institute of Accountancy and Business Administration (ISCAE), Manouba University, Manouba Campus, 2010, Tunisia ' Higher Institute of Business Administration of Sfax, University of Sfax, Aerodrome Road km 4, B.P.1013, Sfax, Tunisia

Abstract: The main purpose of this paper was to ascertain the effect of inflation on the growth-enhancing role of financial development assuming a non-linearity relationship between finance and growth under different inflation regimes. The empirical study was carried out using the threshold regression model over the period of the first month of 1982 to the twelfth month of 2018. We found a strong evidence of a threshold effect (4.89%) which modifies the impact of financial deepening on growth in Tunisia. If the inflation rate falls below 4.89%, financial depth stimulates economic growth. However, this effect is weakened as inflation rate grows. Oppositely, credit growth of commercial banks is not efficient enough to contribute to economic growth. Thus, high inflation disrupts the growth-enhancing role of finance in Tunisia. Practically, the Tunisian monetary authorities are recommended to keep an inflation rate under 4.89% to reach a sustainable growth through financial development.

Keywords: threshold regression model; inflation; financial development; economic growth.

DOI: 10.1504/IJMEF.2021.118282

International Journal of Monetary Economics and Finance, 2021 Vol.14 No.5, pp.438 - 459

Accepted: 08 Mar 2021
Published online: 18 Oct 2021 *

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