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Non-linearities in the Relationship between Finance and Growth

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Abstract

This paper reviews the empirical literature on the links between ?finance and growth with a special focus on the empirical literature that has shown that the marginal contribution of fi?nancial depth to economic growth becomes negative in countries with large fi?nancial sectors (the too much fi?nance? result). It then assesses the empirical and theoretical validity of recent criticisms to this literature and concludes by discussing avenues for future research aimed at identifying the channels through which a very large ?financial sector can slow down economic growth.

Suggested Citation

  • Ugo Panizza, 2017. "Non-linearities in the Relationship between Finance and Growth," IHEID Working Papers 12-2017, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heidwp12-2017
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    Keywords

    Financial development; Finance-growth Nexus; Too much finance;

    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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