Reassessing the Impact of Finance on Growth

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.

Stephen G. Cecchetti and Enisse Kharroubi

Bank of International Settlements Working Paper no. 381

July 2012

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