Abstract
The goal of this paper is to investigate the threshold cointegration effect of financial deepening on economic growth in Taiwan over the period from 1981 to 2010. The results show that a threshold cointegration effect exists in relationship between financial deepening and economic growth. In short-run, economic growth has a significant and positive effect on financial deepening in the high-growth regime. This implies that economic growth can stimulate financial deepening in Taiwan in the high-growth regime. In addition, the impact of financial deepening on economic development has a significant and positive effect in the high- and low- growth regimes. Thus, financial deepening can increase economic growth in Taiwan.
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