Reassessing The Impact Of Finance On Growth

Submitted By g35brandon
Words: 8032
Pages: 33
Open Document
BIS Working Papers
No 381

Reassessing the impact of finance on growth by Stephen G Cecchetti and Enisse Kharroubi

Monetary and Economic Department
July 2012

JEL classification: D92, E22, E44, O4
Keywords: Growth, financial development, credit booms, R&D intensity, financial dependence

BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS.

This publication is available on the BIS website (www.bis.org).

© Bank for International Settlements 2012. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated.

ISSN 1020-0959 (print)
ISSN 1682-7678 (online)

Reassessing the impact of finance on growth
Stephen G Cecchetti and Enisse Kharroubi*

July 2012

Abstract
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, dependence *

financial development,

credit booms, R&D intensity, financial

Cecchetti is Economic Adviser at the Bank for International Settlements (BIS) and Head of its Monetary and
Economic Department, and Kharroubi is Economist at the BIS. This paper was prepared for the Reserve Bank of India’s Second International Research Conference in Mumbai, India, on 1–2 February 2012. We thank
Claudio Borio, Leonardo Gambacorta, Christian Upper and Fabrizio Zampolli for helpful suggestions; and
Garry Tang for valuable research assistance. The views expressed in this paper are those of the authors and not necessarily those of the BIS.

iii

1.

Introduction

One of the principal conclusions of modern economics is that finance is good for growth. The idea that an economy needs intermediation to match borrowers and lenders, channelling resources to their most efficient uses, is fundamental to our thinking. And, since the pioneering work of Goldsmith (1969), McKinnon (1973) and Shaw (1973), we have been able to point to evidence supporting the view that financial development is good for growth. More recently, researchers were able to move beyond simple correlations and establish a convincing causal link running from finance to growth. While there have been dissenting views, today it is accepted that finance is not simply a by-product of the development process, but an engine propelling growth.1 This, in turn, was one of the key elements supporting arguments for financial deregulation. If finance is good for growth, shouldn’t we be working to eliminate barriers to further financial development?
It is fair to say that recent experience has led both academics and policymakers to reconsider their prior conclusions. Is it true regardless of the size and growth rate of the financial system? Or, like a person who eats too much, does a bloated financial system become a drag on the rest of the economy?
In this paper, we address this question by examining the impact of the size and growth of the financial system on productivity growth at the level of aggregate economies. We present two very striking conclusions. First, as is the case with many things in life, with finance you can have too much of a good thing. That is, at low levels, a larger financial system goes hand in hand with higher productivity growth. But there comes a point – one that many advanced economies passed long ago – where more
Show More

Related Documents: Reassessing The Impact Of Finance On Growth

Quality Management: Implementing Quality Systems Essay

organization’s members about the system’s importance. A vital part of developing the quality management system is to plan and deliver training about quality issues throughout the organization. The company must also register with a registrar (a body like BSI) who visits and assesses the company’s quality management system (QMS) and, if satisfied, issues an appropriate certificate. Follow up visits are carried out to ensure the processes in place are continually revised and improved. One most important…

Words 2160 - Pages 9

Servant Leadership In Nursing

Dealing with conflict is something most leaders are not strong with I on the other hand consider this one of my best qualities. If there is a problem between team members I have clear expectations that they will communicate with each other what their issues are and if needed I will help mediate. Being a trusted leader means that you will mean what you say and do what you do. As a leader you have to have difficult conversations and the leaders who succeeds are the ones who can do this according to (Smith…

Words 1503 - Pages 7

Assig 3 Essay example

healthy and safe indoor and outdoor environments and services. Regarding the components of a safe environment include: Safeguarding and promoting children’s welfare – All practitioners should have an up-to-date understanding of safeguarding children issues and be able to implement the safeguarding children policy and procedure appropriately. Staff should be able to respond appropriately to any significant changes; in children’s behaviour; unexplained bruising, marks or signs of possible abuse; signs…

Words 6296 - Pages 26

Essay on Apple Inc

Apple Inc. Tiffany Garland MBA 6012 4/25/2015 Apple Inc., a company many of us knows all too well. Between having the best operating systems to the best watches, computers and cellular phones, Apple is the most successful company in the world right now. This is the company I have chosen to complete my project on. Apple is a global company and has markets all over the world. Under the direction of Steve Jobs in the early years before his death in 2011, Jobs branded this company and took the world…

Words 1274 - Pages 6

Naturalistic Career Counseling

called upon to assist their clients with a variety of issues, including career development and transitions. Consequently, there is a great need for evidence based assessments, interventions, and theories to properly meet the client’s needs. The following is a discussion related to a study conducted by Multon, Wood, Heppner, and Gysbers (2007) on adults in a naturalistic career counseling setting, resulting in the identification of clusters of issues, as well as, support for utilizing a holistic approach…

Words 1532 - Pages 7

Fortis Inc Essay

destruction of wild animal and plant life and the adverse downstream impact, and allege that there are more viable and cost-effective sources. Through a strategic analysis of the issues surrounding the case, we will analyze each alternative to present the best possible recommendation to Fortis Inc. Issues The most prominent issue faced by Fortis Inc. with respect to the Chalillo project is the potential environmental effects. A number of groups are opposed to the project due to the location, on a river…

Words 3537 - Pages 15

Crm for Organization Essay

An analysis of customer relationship management system in organization Abstract - This report will aim to analyze customer relationship management system and why customer relationship management system is important for organization. Due to, the competition among…

Words 4298 - Pages 18

Rfid and Stock Essay examples

throughout the year. Radio Frequency Identification (RFID) tagging using hand-held readers can offer a simple and efficient way to maintain a continuous check on inventory. Any stock control system must enable you to: track stock levels make orders issue stock The simplest manual system is the stock book, which suits small businesses with few stock items. It enables you to keep a log of stock received and stock issued. It can be used alongside a simple re-order system. For example, the two-bin system…

Words 1461 - Pages 6

Surfing and Quiksilver Essay

Quiksilver, Inc. Carlos Antonini Business Communication Bus. 154 l1 Background Quiksilver, Inc. is a global company, which represents not only a brand, but also a lifestyle and attitude. Alan Greene and John Law, two surfers from Australia founded the company in 1970. However, it wasn’t because of them that the company came to be a top brand worldwide. In 1976, the Californian surfers Robert B. McKnight and Jeffrey Hakman decided to…

Words 1568 - Pages 7

Essay on Nokia Analysis

Introduction: "Nokia - Connecting People": this slogan is known all over the world. In 2006 Nokia employs 68,041 people in 120 countries. Currently every third mobile phone sold in the world is from Nokia. The Nokia Company is today one of the world's leading high tech companies. Its rapidly growth in the 1990s coincided with a basal structural change of the Finnish economy and industry. In this restructuring process Nokia played an important role. Despite the fact that Nokia is a leading multinational…

Words 6428 - Pages 26