Too Much Finance?

Author/Editor: Enrico Berkes ; Ugo Panizza ; Jean-Louis Arcand
Publication Date: June 01, 2012
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper examines whether there is a threshold above which financial development no longer has a positive effect on economic growth. We use different empirical approaches to show that there can indeed be "too much" finance. In particular, our results suggest that finance starts having a negative effect on output growth when credit to the private sector reaches 100% of GDP. We show that our results are consistent with the "vanishing effect" of financial development and that they are not driven by output volatility, banking crises, low institutional quality, or by differences in bank regulation and supervision.
Series: Working Paper No. 12/161
Subject(s): Banks | Economic growth | Financial sector | Financial systems | Stock markets

Author's Keyword(s): Financial development | Economic Growth | Stock Markets | Banks | Finance-growth nexus
Publication Date: June 01, 2012
ISBN/ISSN: 9781475504668/1018-5941 Format: Paper
Stock No: WPIEA2012161 Pages: 50
US$18.00 (Academic Rate:
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