Too Much Finance Redux

Jean-Louis Arcand, Enrico Berkes and Ugo Panizza

No 21237, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper revisits the "too much finance" hypothesis by reassessing the relationship between financial depth and economic growth using an expanded dataset (1960 - 2019) and a systematic estimation strategy that avoids reliance on any single, potentially arbitrary sample window. We estimate both cross-sectional and panel models for all feasible starting periods and focus on transparent specifications. We find a robust inverted-U relationship between private credit and growth: financial depth is growth-enhancing at low and moderate levels but exhibits diminishing returns and eventually becomes negative at high levels. The turning point generally lies between 70 and 120 percent of GDP, almost always below the 90th percentile of the global distribution of credit to the private sector.

Keywords: Financial; depth (search for similar items in EconPapers)
JEL-codes: F36 G10 O16 O40 (search for similar items in EconPapers)
Date: 2026-03
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Working Paper: Too Much Finance Redux (2026)
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