Too Much Finance?
June 1, 2012
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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.
Subject: Bank supervision, Banking crises, Credit, Economic sectors, Financial crises, Financial markets, Financial regulation and supervision, Financial sector, Financial sector development, Money
Keywords: Bank supervision, Banking crises, Banks, Credit, credit to the private sector, decreasing returns, dummy variable, economic development, Economic Growth, Finance-growth nexus, Financial development, Financial sector, Financial sector development, mis-specification error, point estimate, positive correlation, Stock Markets, System GMM, WP
Pages:
50
Volume:
2012
DOI:
Issue:
161
Series:
Working Paper No. 2012/161
Stock No:
WPIEA2012161
ISBN:
9781475504668
ISSN:
1018-5941
