Too Much Finance Redux

Jean-Louis Arcand, Enrico Berkes and Ugo Panizza
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Jean-Louis Arcand: Global Development Network and Geneva Graduate Institute
Enrico Berkes: University of Maryland, Baltimore County

No 04-2026, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

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; Finance-growth Nexus; Too much finance (search for similar items in EconPapers)
JEL-codes: F36 G10 O16 O40 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2026-02-23
New Economics Papers: this item is included in nep-cfn and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp04-2026

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