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Financial development and growth volatility revisited

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  • Struthmann, Philipp

Abstract

This paper examines the relationship between financial development and macroeconomic growth volatility. Using data from 104 countries over the period 1980–2023 and employing endogeneity-robust estimation techniques, we find that financial intermediation, along with access, depth, and efficiency of financial institutions and markets, generally reduces growth volatility in the long run. However, this effect is non-monotonic, implying that too much finance might actually exacerbate growth volatility. Furthermore, we show that the relationship between financial development and growth volatility has weakened over time and that there is no significant association between finance and growth volatility in the short run.

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  • Struthmann, Philipp, 2025. "Financial development and growth volatility revisited," Finance Research Letters, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:finlet:v:78:y:2025:i:c:s1544612325004386
    DOI: 10.1016/j.frl.2025.107175
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