Does Too Much Finance Harm Economic Growth?

30 Pages Posted: 20 Sep 2017

See all articles by Siong Hook Law

Siong Hook Law

University Putra Malaysia

Nirvikar Singh

University of California, Santa Cruz

Date Written: October 18, 2013

Abstract

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.

Keywords: Finance, economic growth, threshold effects, dynamic panel threshold

JEL Classification: G21, O41

Suggested Citation

Law, Siong Hook and Singh, Nirvikar, Does Too Much Finance Harm Economic Growth? (October 18, 2013). Available at SSRN: https://ssrn.com/abstract=3039190 or http://dx.doi.org/10.2139/ssrn.3039190

Siong Hook Law (Contact Author)

University Putra Malaysia ( email )

Serdang, Selangor 43400
Malaysia

Nirvikar Singh

University of California, Santa Cruz ( email )

Department of Economics
E2 Building
Santa Cruz, CA 95064
United States
831-459-4093 (Phone)
831-459-5077 (Fax)

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