Too Much Finance?

Author/Editor:

Enrico G Berkes ; Ugo Panizza ; Jean-Louis Arcand

Publication Date:

June 1, 2012

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2012/161

Subject:

Bank supervision Banking crises Credit Economic sectors Financial crises Financial markets Financial regulation and supervision Financial sector Financial sector development Money

English

Publication Date:

June 1, 2012

ISBN/ISSN:

9781475504668/1018-5941

Stock No:

WPIEA2012161

Pages:

50

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