Journal of Economic Growth

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

Too much finance?

Article

Abstract

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.

Keywords

Finance Growth Financial crises Non-linearities 

JEL Classification

O11 O16 E44 G1 

Supplementary material

10887_2015_9115_MOESM1_ESM.zip (798 kb)
Supplementary material 1 (zip 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
  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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