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Too Much Finance?

  • Enrico Berkes
  • Ugo Panizza
  • Jean-Louis Arcand

This paper examines whether there is a threshold above which financial development no longer has a positive effect on economic growth. We use different empirical approaches to show that there can indeed be "too much" finance. In particular, our results suggest that finance starts having a negative effect on output growth when credit to the private sector reaches 100% of GDP. We show that our results are consistent with the "vanishing effect" of financial development and that they are not driven by output volatility, banking crises, low institutional quality, or by differences in bank regulation and supervision.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/161.

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Length: 50
Date of creation: 01 Jun 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/161
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