Does Too Much Finance Harm Economic Growth?

Does Too Much Finance Harm Economic Growth?
Author: Siong Hook Law
Publisher:
Total Pages: 30
Release: 2017
Genre:
ISBN:

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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.

Too Much Finance?

Too Much Finance?
Author: Mr.Jean-Louis Arcand
Publisher: International Monetary Fund
Total Pages: 50
Release: 2012-06-01
Genre: Business & Economics
ISBN: 1475526105

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This paper examines whether there is a threshold above which financial development no longer has a positive effect on economic growth. We use different empirical approaches to show that there can indeed be "too much" finance. In particular, our results suggest that finance starts having a negative effect on output growth when credit to the private sector reaches 100% of GDP. We show that our results are consistent with the "vanishing effect" of financial development and that they are not driven by output volatility, banking crises, low institutional quality, or by differences in bank regulation and supervision.

Financial Development and Economic Growth

Financial Development and Economic Growth
Author: Mr.Pablo Emilio Guidotti
Publisher: International Monetary Fund
Total Pages: 38
Release: 1992-12-01
Genre: Business & Economics
ISBN: 1451852452

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This paper examines the empirical relationship between long–run growth and the degree of financial development, proxied by the ratio of bank credit to the private sector as a fraction of GDP. We find that this proxy enters significantly and with a positive sign in growth regressions on a large cross–country sample, but with a negative sign using panel data for Latin America. Our findings suggest that the main channel of transmission from financial development to growth is the efficiency of investment, rather than its volume. We also present a model where the negative correlation between financial intermediation and growth results from financial liberalization in a poor regulatory environment.

Inflation and Growth

Inflation and Growth
Author: Stephanie Kremer
Publisher:
Total Pages: 36
Release: 2010
Genre:
ISBN: 9783941240032

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Too Much Finance... for Whom?

Too Much Finance... for Whom?
Author: Rachel Cho
Publisher:
Total Pages: 46
Release: 2022
Genre: Economic development
ISBN:

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We revisit the causal implications of financial deepening for economic development and banking crises adopting a heterogeneous difference-in-difference framework. Using a large panel dataset over the past six decades we demonstrate that very high levels of financial development, proxied by credit/GDP, are neither associated with lower economic growth in the long-run nor with a higher short-run propensity of triggering financial crises due to 'credit booms gone bust' cycles or unfettered capital inflows. We then investigate the 'too much finance' narrative at intermediate levels of financial development and, again, fail to detect any evidence for detrimental long-run growth effects. We further demonstrate that for this group of (emerging) economies elevated levels of financial development do not hamper a shift from capital accumulation to an innovation-based ('modern') growth paradigm, or their structural transformation away from the primary sector. There are however indications that 'too much finance' for this group can increase the propensity for banking crises through capital inflows and commodity price movements. Hence, our analysis can confirm elements of a 'too much finance' effect albeit (i) not for advanced economies at the top of the credit/GDP distribution but those at more intermediate levels, and (ii) even for these countries seemingly without any negative implications for their long-term growth trajectories.

The Volatility Machine

The Volatility Machine
Author: Michael Pettis
Publisher: Oxford University Press, USA
Total Pages: 272
Release: 2001
Genre: Business & Economics
ISBN: 9780195143300

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This book presents a radically different argument for what has caused, and likely will continue to cause, the collapse of emerging market economies. Pettis combines the insights of economic history, economic theory, and finance theory into a comprehensive model for understanding sovereign liability management and the causes of financial crises. He examines recent financial crises in emerging market countries along with the history of international lending since the 1820s to argue that the process of international lending is driven primarily by external events and not by local politics and/or economic policies. He draws out the corporate finance implications of this approach to argue that most of the current analyses of the recent financial crises suffered by Latin America, Asia, and Russia have largely missed the point. He then develops a sovereign finance model, analogous to corporate finance, to understand the capital structure needs of emerging market countries. Using this model, he finally puts into perspective the recent crises, a new sovereign liability management theory, the implications of the model for sovereign debt restructurings, and the new financial architecture. Bridging the gap between finance specialists and traders, on the one hand, and economists and policy-makers on the other, The Volatility Machine is critical reading for anyone interested in where the international economy is going over the next several years.

Finance and Economic Development

Finance and Economic Development
Author: Asl? Demirgüç-Kunt
Publisher: World Bank Publications
Total Pages: 55
Release: 2006
Genre: Desarrollo economico
ISBN:

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" The empirical literature on finance and development suggests that countries with better developed financial systems experience faster economic growth. Financial development-as captured by size, depth, efficiency, and reach of financial systems-varies sharply around the world, with large differences among countries at similar levels of income. This paper argues that governments play an important role in building effective financial systems and discusses different policy options to make finance work for development."--World Bank web site.

Expansionary Austerity New International Evidence

Expansionary Austerity New International Evidence
Author: Mr.Daniel Leigh
Publisher: International Monetary Fund
Total Pages: 41
Release: 2011-07-01
Genre: Business & Economics
ISBN: 1455294691

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This paper investigates the short-term effects of fiscal consolidation on economic activity in OECD economies. We examine the historical record, including Budget Speeches and IMFdocuments, to identify changes in fiscal policy motivated by a desire to reduce the budget deficit and not by responding to prospective economic conditions. Using this new dataset, our estimates suggest fiscal consolidation has contractionary effects on private domestic demand and GDP. By contrast, estimates based on conventional measures of the fiscal policy stance used in the literature support the expansionary fiscal contractions hypothesis but appear to be biased toward overstating expansionary effects.

The Costs and Benefits of Price Stability

The Costs and Benefits of Price Stability
Author: Martin Feldstein
Publisher: University of Chicago Press
Total Pages: 374
Release: 2007-12-01
Genre: Business & Economics
ISBN: 0226241769

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In recent years, the Federal Reserve and central banks worldwide have enjoyed remarkable success in their battle against inflation. The challenge now confronting the Fed and its counterparts is how to proceed in this newly benign economic environment: Should monetary policy seek to maintain a rate of low-level inflation or eliminate inflation altogether in an effort to attain full price stability? In a seminal article published in 1997, Martin Feldstein developed a framework for calculating the gains in economic welfare that might result from a move from a low level of inflation to full price stability. The present volume extends that analysis, focusing on the likely costs and benefits of achieving price stability not only in the United States, but in Germany, Spain, and the United Kingdom as well. The results show that even small changes in already low inflation rates can have a substantial impact on the economic performance of different countries, and that variations in national tax rules can affect the level of gain from disinflation.