Reassessing the impact of finance on growth

BIS Working Papers No 381
July 2012

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