Friday, September 21, 2012

Reassessing the impact of finance on growth


This paper investigates how financial development affects growth at both the country and the
industry level. 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 can be detrimental to aggregate productivity growth. Finally, looking at industry-level
data, we show that financial sector growth disproportionately harms industries that are either
financially dependent or R&D-intensive.

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