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Too much finance?

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  • Jean Arcand

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  • Enrico Berkes

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  • Ugo Panizza

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Abstract

This paper examines whether there is a threshold above which financial depth no longer has a positive effect on economic growth. We use different empirical approaches to show that financial depth starts having a negative effect on output growth when credit to the private sector reaches 100 % of GDP. Our results are consistent with the “vanishing effect” of financial depth and that they are not driven by endogeneity, output volatility, banking crises, low institutional quality, or by differences in bank regulation and supervision. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Jean Arcand & Enrico Berkes & Ugo Panizza, 2015. "Too much finance?," Journal of Economic Growth, Springer, vol. 20(2), pages 105-148, June.
  • Handle: RePEc:kap:jecgro:v:20:y:2015:i:2:p:105-148
    DOI: 10.1007/s10887-015-9115-2
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    More about this item

    Keywords

    Finance; Growth; Financial crises; Non-linearities; O11; O16; E44; G1;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G1 - Financial Economics - - General Financial Markets

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