IDEAS home Printed from https://ideas.repec.org/p/oec/ecoaaa/1223-en.html
   My bibliography  Save this paper

Finance and economic growth in OECD and G20 countries

Author

Listed:
  • Boris Cournède

    (OECD)

  • Oliver Denk

    (OECD)

Abstract

This paper shows that finance has been a key ingredient of long-term economic growth in OECD and G20 countries over the past half-century, but that there can be too much finance. The evidence indicates that at current levels of household and business credit further expansion slows rather than boosts growth. Causality from more credit to slower growth is supported by a novel empirical methodology which exploits changes in financial regulation across countries and time as a source of exogenous variation in financial size. The empirical analyses point to five factors that link more credit to slower growth: i) excessive financial deregulation, ii) a more pronounced increase in credit issuance by banks than other intermediaries, iii) too-big-to-fail guarantees by the public authorities for large financial institutions, iv) a lower quality of credit and v) a disproportionate rise of household compared with business credit. By contrast, expansions in stock market funding in general boost growth. Finance et croissance économique dans les pays de l'OCDE et du G20 Ce document montre que la finance a été une composante essentielle de la croissance économique à long terme dans les pays de l’OCDE et du G20 durant les cinquante dernières années, mais que parfois, il peut y avoir trop de finance. Certaines observations montrent en effet qu’au niveau actuel du crédit aux ménages et aux entreprises, toute nouvelle expansion freine plutôt qu’elle n’accélère la croissance. Des liens de causalité entre l’accroissement de l’offre de crédit et le ralentissement de la croissance sont mis en évidence par une nouvelle méthode empirique, qui utilise les modifications de la réglementation financière dans les pays et dans le temps comme une source de variation exogène de la taille de la finance. L’analyse empirique attire l’attention sur cinq facteurs qui établissent un lien entre l’accroissement de l’offre de crédit et le ralentissement de la croissance : i) une déréglementation financière excessive, ii) une émission de crédit par les banques en progression plus rapide que par les autres intermédiaires, iii) les garanties des pouvoirs publics sur les établissements d’importance systémique (TBTF), iv) une moindre qualité du crédit et v) une augmentation du crédit aux ménages nettement plus forte que celle du crédit aux entreprises. En revanche, l’accroissement du financement par actions en général stimule la croissance.

Suggested Citation

  • Boris Cournède & Oliver Denk, 2015. "Finance and economic growth in OECD and G20 countries," OECD Economics Department Working Papers 1223, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1223-en
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1787/5js04v8z0m38-en
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Loayza,Norman V. & Ouazad,Amine & Ranciere,Romain, 2017. "Financial development, growth, and crisis: is there a trade-off ?," Policy Research Working Paper Series 8237, The World Bank.
    2. Jean-Marc Fournier, 2016. "The Positive Effect of Public Investment on Potential Growth," OECD Economics Department Working Papers 1347, OECD Publishing.
    3. Oliver Denk & Boris Cournède, 2015. "Finance and income inequality in OECD countries," OECD Economics Department Working Papers 1224, OECD Publishing.
    4. repec:eee:finana:v:56:y:2018:i:c:p:193-207 is not listed on IDEAS
    5. Charles W. Calomiris & Matthew Jaremski, 2016. "Deposit Insurance: Theories and Facts," Annual Review of Financial Economics, Annual Reviews, vol. 8(1), pages 97-120, October.
    6. Emmanuel Carré & Guillaume L’Œillet, 2017. "Une revue de la littérature récente sur le nexus finance-croissance après la crise : apports, limites et pistes de recherche," Revue d'économie financière, Association d'économie financière, vol. 0(3), pages 271-290.
    7. Aida Caldera Sánchez & Alain de Serres & Filippo Gori & Mikkel Hermansen & Oliver Röhn, 2017. "Strengthening economic resilience: Insights from the post-1970 record of severe recessions and financial crises," OECD Economic Policy Papers 20, OECD Publishing.
    8. Benczur, Peter & Karagiannis, Stylianos & Kvedaras, Virmantas, 2017. "Finance and economic growth: financing structure and non-linear impact," Working Papers 2017-07, Joint Research Centre, European Commission (Ispra site).
    9. Marco Pagano & ESRB Advisory Scientific Committee, 2014. "Is Europe Overbanked?," mBank - CASE Seminar Proceedings 132, CASE-Center for Social and Economic Research.
    10. Boris Cournède & Oliver Denk & Peter Hoeller, 2015. "Finance and Inclusive Growth," OECD Economic Policy Papers 14, OECD Publishing.
    11. Ádám Banai & Szilárd Erhart & Nikolett Vágó & Péter Varga, 2016. "How to set listing criteria for small and medium-sized enterprises in Hungary?," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 15(3), pages 79-109.
    12. repec:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1142-0 is not listed on IDEAS
    13. repec:aea:jecper:v:31:y:2017:i:3:p:131-50 is not listed on IDEAS
    14. William R. Cline, 2015. "Further Statistical Debate on "Too Much Finance"," Working Paper Series WP15-16, Peterson Institute for International Economics.
    15. repec:pal:compes:v:60:y:2018:i:1:d:10.1057_s41294-018-0056-6 is not listed on IDEAS
    16. Jean-Marc Fournier & Åsa Johansson, 2016. "The Effect of the Size and the Mix of Public Spending on Growth and Inequality," OECD Economics Department Working Papers 1344, OECD Publishing.
    17. Pietro Alessandrini & Michele Fratianni & Luca Papi & Alberto Zazzaro, 2016. "Banks, Regions and Development After the Crisis and Under the New Regulatory System," Credit and Capital Markets, Credit and Capital Markets, vol. 49(4), pages 535-561.
    18. Ugo Panizza, 2018. "Nonlinearities in the Relationship Between Finance and Growth," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 60(1), pages 44-53, March.
    19. Claessens, Stijn, 2017. "Regulation and structural change in financial systems," CEPR Discussion Papers 11822, C.E.P.R. Discussion Papers.
    20. Jérôme Creel & Paul Hubert & Fabien Labondance, 2017. "Financialisation Risks and Econmic Performance," Documents de Travail de l'OFCE 2017-21, Observatoire Francais des Conjonctures Economiques (OFCE).
    21. repec:zbw:ifweej:201838 is not listed on IDEAS
    22. Iwata, Kazumasa & Jean, Sébastien & Kastrop, Christian & Loewald, Chris & Véron, Nicolas, 2018. "T20 resilience and inclusive growth," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 12, pages 1-10.
    23. Charles W. Calomiris & Sophia Chen, 2018. "The Spread of Deposit Insurance and the Global Rise in Bank Asset Risk since the 1970s," Working Papers id:12909, eSocialSciences.
    24. Mikhail Stolbov, 2017. "Causality between credit depth and economic growth: evidence from 24 OECD countries," Empirical Economics, Springer, vol. 53(2), pages 493-524, September.
    25. Boris Cournède & Paula Garda & Volker Ziemann, 2015. "Effects of Economic Policies on Microeconomic Stability," OECD Economics Department Working Papers 1201, OECD Publishing.

    More about this item

    Keywords

    bank credit; business credit; capital-market credit; croissance du PIB; crédit bancaire; debt finance; economic growth; equity finance; GDP growth; guarantees; housing credit; marché boursier; stock market; Too-big-to-fail;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oec:ecoaaa:1223-en. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/edoecfr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.