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Too Much Finance Redux

Author

Listed:
  • Jean-Louis Arcand

    (Global Development Network and Geneva Graduate Institute)

  • Enrico Berkes

    (University of Maryland, Baltimore County)

  • Ugo Panizza

    (Geneva Graduate Institute and CEPR)

Abstract

This paper revisits the "too much finance" hypothesis by reassessing the relationship between financial depth and economic growth using an expanded dataset (1960–2019) and a systematic estimation strategy that avoids reliance on any single, potentially arbitrary sample window. We estimate both cross-sectional and panel models for all feasible starting periods and focus on transparent specifications. We find a robust inverted-U relationship between private credit and growth: financial depth is growth-enhancing at low and moderate levels but exhibits diminishing returns and eventually becomes negative at high levels. The turning point generally lies between 70 and 120 percent of GDP, almost always below the 90th percentile of the global distribution of credit to the private sector.

Suggested Citation

  • Jean-Louis Arcand & Enrico Berkes & Ugo Panizza, 2026. "Too Much Finance Redux," IHEID Working Papers 04-2026, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp04-2026
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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