Comparative Economic Studies

, Volume 53, Issue 3, pp 475–488 | Cite as

The Evolution of the Finance Growth Nexus

  • Paul Wachtel
Symposium Article

Abstract

The role of the financial sector in economic growth received scant attention from economists until very recently. An explosion of research in the last 20 years has firmly entrenched the finance growth nexus in the canon of economic beliefs. This paper suggests that the literature might have over emphasised the strength of the nexus that is much more nuanced than often suggested. The most commonly used measure of financial sector development, financial depth, is difficult to interpret because it can be a reflection of economy wide leverage as well as the quality and quantity of intermediation. Our examination of experience with financial deepening and of other measures of financial activity such as value added does not suggest that finance is unimportant. Instead, it shows how difficult it is to measure financial sector activity adequately.

Keywords

growth financial depth credit boom financial crisis financial sector value added credit to GDP ratio 

JEL Classifications

043 N20 B22 

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Copyright information

© Association for Comparative Economics 2011

Authors and Affiliations

  • Paul Wachtel
    • 1
  1. 1.Stern School of Business, New York UniversityNew YorkUSA

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