March 2022: Little evidence for ‘too much finance’

by Rachel Cho, Rodolphe Desbordes, Markus Eberhardt

The current consensus in the literature that the finance-growth nexus is more complex than previously thought has led to concerns about ‘too much finance’. This column looks at the effects of ‘too much finance’ on growth and propensity for banking crisis and finds some evidence of a detrimental effect, but not for highly financially developed countries. Even for countries with intermediate levels of financial development, there do not appear to be any negative implications of ‘too much finance’ for long-term growth trajectories.

Link: Little evidence for ‘too much finance’