IMF Working Papers

Too Much Finance?

By Enrico G Berkes, Ugo Panizza, Jean-Louis Arcand

June 1, 2012

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Enrico G Berkes, Ugo Panizza, and Jean-Louis Arcand. Too Much Finance?, (USA: International Monetary Fund, 2012) accessed November 8, 2024
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.

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

Publication Details

  • Pages:

    50

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2012/161

  • Stock No:

    WPIEA2012161

  • ISBN:

    9781475504668

  • ISSN:

    1018-5941

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