Too Much Finance?

51 Pages Posted: 10 Aug 2012

See all articles by Jean-Louis Arcand

Jean-Louis Arcand

The Graduate Institute, Geneva

Enrico Berkes

Northwestern University, Department of Economics, Students

Ugo Panizza

United Nations - Conference on Trade and Development (UNCTAD)

Date Written: June 2012

Abstract

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

Arcand, Jean-Louis and Berkes, Enrico and Panizza, Ugo, Too Much Finance? (June 2012). IMF Working Paper No. 12/161. Available at SSRN: https://ssrn.com/abstract=2127541

Jean-Louis Arcand

The Graduate Institute, Geneva ( email )

PO Box 136
Geneva, CH-1211
Switzerland

Enrico Berkes

Northwestern University, Department of Economics, Students ( email )

Evanston, IL
United States

Ugo Panizza

United Nations - Conference on Trade and Development (UNCTAD) ( email )

Palais des Nations
Geneva, 1211
United States

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