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“Ideal” financial development and financial overaccumulation

  • Hsu, Sara
  • Li, Jianjun

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38035.

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Date of creation: 11 Apr 2012
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Handle: RePEc:pra:mprapa:38035
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