Does too much finance harm economic growth

By S. Law, Nirvikar Singh. 2014

842 citations recorded by the source corpus.

This study provides new evidence on the relationship between finance and economic growth using an innovative dynamic panel threshold technique. The sample consists of 87 developed and developing countries. The empirical results indicate that there is a threshold effect in the finance–growth relationship. In particular, we find that the level of financial development is beneficial to growth only up to a certain threshold; beyond the threshold level further development of finance tends to adversely affect growth. These findings reveal that more finance is not necessarily good for economic growth and highlight that an “optimal” level of financial development is more crucial in facilitating growth.

Subfields: Accounting, Economics and Econometrics, Information Systems

View Paper: https://www.semanticscholar.org/paper/b1714d76d1af0b4ab445e99990c5f1b420a0bdbe

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Economics and Econometrics

In Information Systems

Citations in the corpus

Financial development, institutional investors, and economic growth (2017, background): “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.”
Towards nexus-based governance: defining interactions between economic activities and Sustainable Development Goals (SDGs) (2020, background): “Furthermore, past a certain threshold financial development can hamper growth (Law and Singh 2014) and although financial development could reduce poverty, the financial instability that typically follows is detrimental to the poor (Akhter and Daly 2009).”
Too much finance? (2015, positive): “While we use an exogenous threshold, Law and Singh (2014) estimate a model with endogenous thresholds and find results which are similar to our findings.”
Finance and economic growth in OECD and G20 countries (2015, methodology): “The finding of a significantly negative relationship between finance and growth when including observations where intermediated credit is 100% of GDP or more is broadly consistent with other recent research (Arcand et al., 2012; Beck et al., 2014; Cecchetti and Kharroubi, 2012; Law and Singh, 2014).”
Causal nexus between economic growth, banking sector development, stock market development, and other macroeconomic variables: The case of ASEAN countries (2014, result): “In general, all these papers suggest that a well-developed financial system is growth-enhancing, and hence, consistent with the proposition of “more finance, more growth” (Law & Singh, 2014).”
How do financial globalization, institutions and economic growth impact financial sector development in European countries? (2020, background): “Using the composite index of financial development covers various dimensions of financial market, that is, depth, access and efficiency and four-way classification of institutions as suggested by Rodrick (2005) and Law et al. (2018), the empirical results indicate that economic growth and institutio”
Financial Structure and Growth (2014, background): “Law and Singh (2014) find a similar effect in the relationship between GDP growth and the size of the financial sector.”