The Impact of Financial Development on Domestic Investment: A Quantile Regression Approach

Abstract

This paper presents an interesting analysis of the role of financial development in boosting domestic investment of a country. The findings of the paper show that the responsiveness of investment to developments in the financial sector is conditional on the investment climate already in place. The need for a well developed financial system is the most for countries who have low investment. Countries with high levels of investment have lesser need for such an infrastructure. We adopt a quantile regression methodology in a dynamic panel set up to explore our hypothesis. The results are based on a broad sample of developed and developing countries over a period of 24 years.

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