Too Much Finance?
51 Pages Posted: 10 Aug 2012
Date Written: June 2012
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.
Keywords: Financial Development, Economic Growth, Stock Markets, Banks, Finance-growth Nexus, economic growth, gdp growth, correlation, gdp per capita, standard errors, dummy variable, statistics, standard deviation, statistically significant effect, functional form, equations, equation, linear model, econometrics, finite sample, confidence intervals, polynomial, probability, forecasting, stata, autocorrelation, computations, outliers, regression analysis, general government final consumption expenditure, growth rate, missing data, annual percentage growth, time series, consumption expenditure, confidence interval, instrumental variables, survey, final consumption expenditure, statistical package, deg
JEL Classification: G10, F36, O16, O40
Suggested Citation: Suggested Citation