Journal of Economic Growth

, Volume 20, Issue 2, pp 105–148 | Cite as

Too much finance?

  • Jean Louis Arcand
  • Enrico Berkes
  • Ugo PanizzaEmail author


This paper examines whether there is a threshold above which financial depth no longer has a positive effect on economic growth. We use different empirical approaches to show that financial depth starts having a negative effect on output growth when credit to the private sector reaches 100 % of GDP. Our results are consistent with the “vanishing effect” of financial depth and that they are not driven by endogeneity, output volatility, banking crises, low institutional quality, or by differences in bank regulation and supervision.


Finance Growth Financial crises Non-linearities 

JEL Classification

O11 O16 E44 G1 



This is a revised version of a paper that was first circulated in March 2011. We would like to thank without implication, three anonymous referees, the editor, Thorsten Beck, Jean-Claude Berthélémy, Gunther Capelle-Blancard, Stijn Claessens, Tito Codella, Fabrizio Coricelli, Augusto de La Torre, Giovanni Dell’Ariccia, Panicos Demetriades, Luigi Guiso, Luc Laeven, Ross Levine, Eduardo Levy Yeyati, Jörg Mayer, Nicolas Maystre, Halvor Mehlum, Juan Pablo Nicolini, Sandra Poncet, Andy Powell, Giuseppe Ragusa, Vincenzo Scoppa, Federico Sturzenegger, Filippo Taddei, Marie-Anne Valfort, and seminar participants at the IMF, Chicago FED, ECARES, Universidad Torcuato di Tella, University of Milan, LUISS, Collegio Carlo Alberto, LACEA, Università delle Marche, Universidad Autonoma del Estado de Mexico, Paris I Panthéon-Sorbonne, University of Bergen, and EUDN for helpful comments and suggestions.

Conflict of interest

The authors declare that they have no conflict of interest.

Supplementary material (798 kb)
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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Jean Louis Arcand
    • 1
    • 2
  • Enrico Berkes
    • 3
  • Ugo Panizza
    • 4
    • 5
    Email author
  1. 1.Department of International EconomicsThe Graduate Institute of International and Development StudiesGeneva 21Switzerland
  2. 2.FERDIClermont-FerrandFrance
  3. 3.Department of EconomicsNorthwestern UniversityEvanston(USA)
  4. 4.Department of International EconomicsThe Graduate Institute of International and Development StudiesGeneva 21Switzerland
  5. 5.CEPRLondonUK

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