Finance and economic growth: Financing structure and non-linear impact

Focusing on groups of high-income countries (OECD, EU, and EMU), this study shows that the finding of a non-linear, hump-shaped impact of financing on economic growth is robust to controlling for financing composition in terms of the sources (bank credit, debt securities, stock market) and the recipients of finances (households, non-financial and financial corporations), or both. In particular, we obtain the following results. First, the non-linear impact of total bank credit is more pronounced than that of either household credit alone, or the sum of bank credit, debt securities, and stock market financing. Second, credit to non-financial corporations tends to have a positive, while credit to households a negative impact on growth, even after allowing for non-linearities. Third, debt-securities and stock market-based financing have a different impact on growth. Finally, the estimated turning point of the non-linear relationship is close to that found by Cournède and Denk (2015) for the OECD countries, and lower than that established by Arcand, Berkes, and Panizza (2015) for a broad set of countries.