Reassessing the impact of finance on growth

BIS Working Papers  |  No 381  | 
17 July 2012
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 |  21 pages

This paper investigates how financial development affects aggregate productivity growth. Based on a sample of developed and emerging economies, we first show that the level of financial development is good only up to a point, after which it becomes a drag on growth. Second, focusing on advanced economies, we show that a fast-growing financial sector is detrimental to aggregate productivity growth.

JEL classification: D92, E22, E44, O4

Keywords: Growth, financial development, credit booms, R&D intensity, financial dependence