This study aims to provide new insights on
examining whether regulatory quality influences the relation between financial
development and economic growth by applying a nonlinear panel smooth transition
regression (PSTR) model. Using the data from Worldwide Governance Indicators
(WGI) to assess the soundness of regulatory quality, this paper finds that the
relationship between financial development, including life insurance and stock
markets, and economic growth is significantly positive in the countries with
relatively better regulatory quality. Our findings not only indicate that sound
regulatory quality could encourage the growth effect of life insurance and
stock market sectors but also have far-reaching practical implications for
other economies to realize regulatory quality should matter for the development
of economic growth.
JEL classification numbers: E44, G22, O11, O47, P34.
Keywords: Regulatory quality, Life insurance development, Stock market
development, Economic growth, Nonlinear panel smooth transition regression