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The finance–growth nexus in crisis

Author

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  • Breitenlechner, Max
  • Gächter, Martin
  • Sindermann, Friedrich

Abstract

While the literature on the finance–growth nexus suggests a positive link between financial development and economic growth, another strand of literature highlights the crucial role of credit growth for the occurrence and strength of financial and economic crises. In this paper, we link the two seemingly contradicting strands of the literature by a strong and robust empirical finding: While financial development is indeed positively linked to GDP p.c. growth in normal, non-crisis times, larger financial sectors lead to significantly worse economic outcomes in the case of a banking crisis.

Suggested Citation

  • Breitenlechner, Max & Gächter, Martin & Sindermann, Friedrich, 2015. "The finance–growth nexus in crisis," Economics Letters, Elsevier, vol. 132(C), pages 31-33.
    • Handle: RePEc:eee:ecolet:v:132:y:2015:i:c:p:31-33
    DOI: 10.1016/j.econlet.2015.04.014
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    References listed on IDEAS

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    More about this item

    Keywords

    Finance; Financial development; Growth; Banking crisis; Non-linearities;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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