Does too much finance harm economic growth?

Siong Hook Law and Nirvikar Singh

Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz

Abstract: This study provides new evidence on the relationship between finance and economic growth using an innovative dynamic panel threshold technique. The sample consists of 87 developed and developing countries. The empirical results indicate that there is a threshold effect in the finance-growth relationship. In particular, we find that the level of financial development is beneficial to growth only up to a certain threshold; beyond the threshold level further development of finance tends to adversely affect growth. These findings reveal that more finance is not necessarily good for economic growth and highlight that an "optimal" level of financial development is more crucial in facilitating growth. © 2014 Elsevier B.V.

Keywords: Finance; Economic growth; Threshold effects; Dynamic panel threshold; economic growth; threshold effects; dynamic panel threshold; Applied Mathematics; Economic Theory; Banking; Finance and Investment (search for similar items in EconPapers)
Date: 2014-04-01
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Citations: View citations in EconPapers (409)

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Journal Article: Does too much finance harm economic growth? (2014)
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