Too Much Finance?

By Enrico G. Berkes, U. Panizza, J. Arcand. Social Science Research Network, 2012

1,341 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance, Information Systems

View Paper: https://www.semanticscholar.org/paper/68adb3d48804ac72ec9484fc82bc1abf0dbf1a7d

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Citations in the corpus

Migration, diversity, and economic growth (2017, methodology): “For recent applications of dynamic panel data model see Arcand, Berkes, and Panizza (2015) and Beck and Levine (2004).”
Rethinking Financial Deepening (2015, neutral): “INTERNATIONAL MONETARY FUND 9 highlights the dangers of financial development that leads to large and complicated financial systems, which could end up in a “catastrophic meltdown.” Gennaioli, Shleifer, and Vishny (2012) show that in the presence of some neglected tail risk, financial innovation can”
Financial development, institutional investors, and economic growth (2017, result): “Our results differ from some studies (Arcand et al., 2015; Cecchetti & Kharroubi, 2012; De Gregorio & Guidotti, 1995; Law & Singh, 2014) that show a positive effect of private sector credit on economic growth for values below the threshold, and positive effect above the threshold.”
Institutional Quality and Financial Development: Evidence from Developing and Emerging Economies (2020, background): “Moreover, Arcand et al. (2015) and Cecchetti and Kharroubi (2015) also show amended financial sector development effort on real economic growth.”