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“Ideal” financial development and financial overaccumulation

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  • Hsu, Sara
  • Li, Jianjun

Abstract

In this paper, we examine whether there is an “ideal” level of financial development, somewhere between financial capital overaccumulation and financial capital underaccumulation. We construct indexes of non-bank or speculative financial development, financial (bank) deepening, and production. We find that financial deepening does support what we dub the “speculative spread,” that is, the difference between non-bank or speculative finance and real production. As financial deepening grows, the speculative spread may grow in step. Where the speculative spread exceeds deepening, financial instability may occur. Hence financial deepening may promote or constrain economic development.

Suggested Citation

  • Hsu, Sara & Li, Jianjun, 2012. "“Ideal” financial development and financial overaccumulation," MPRA Paper 38035, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:38035
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    References listed on IDEAS

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    Cited by:

    1. Hsu, Sara, 2012. "The US financial system, the great recession, and the “speculative spread”," MPRA Paper 38478, University Library of Munich, Germany.

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    More about this item

    Keywords

    financial deepening; economic growth; profit rate; overaccumulation;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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