## Too Much Finance?

_IMF Working Papers, June 1, 2012_

## Source details

**Canonical URL:** [Too Much Finance?](https://www.imf.org/en/publications/wp/issues/2016/12/31/too-much-finance-26011)

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## Bibliographic details
- Authors: Enrico G Berkes, Ugo Panizza, Jean-Louis Arcand
- Published: June 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475504668.001

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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.
- Different empirical approaches are used to show that there can indeed be "too much" finance.
- Key quantitative finding: finance starts having a negative effect on output growth when credit to the private sector reaches 100% of GDP.
- The results are consistent with the "vanishing effect" of financial development and are shown not to be driven by:
  - output volatility,
  - banking crises,
  - low institutional quality,
  - differences in bank regulation and supervision.

### Main findings
- Finance has diminishing returns to economic growth and can become harmful beyond a threshold.
- Identified threshold: credit to the private sector = 100% of GDP.
- The negative effect on output growth begins at that threshold.

### Methodology and robustness
- Multiple empirical approaches are applied to test for a threshold effect.
- Robustness checks indicate results are not driven by:
  - output volatility,
  - banking crises,
  - low institutional quality,
  - differences in bank regulation and supervision.

### Thematic coverage and keywords
- Subjects: 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.

*Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/too-much-finance-26011*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/too-much-finance-26011_